ENFORCEMENT DECREE OF THE ADJUSTMENT OF INTERNATIONAL TAXES ACT

영문법령 불러오는 중…

ENFORCEMENT DECREE OF THE ADJUSTMENT OF INTERNATIONAL TAXES ACT — 법갈피

Article 11-2(Arm's length pricing method for cash pooling transactions) #

(1) "Cash pooling transaction" in this Article means either of the following transactions within an enterprise group comprising residents and foreign related parties (hereinafter referred to as "enterprise group") that centralizes liquidity management by selecting a person responsible for centrally managing the enterprise group's funds (hereinafter referred to as "cash pool leader") and managing the deposit accounts opened and held by each constituent enterprise at the enterprise group level, resulting in benefits for residents and foreign related parties within the enterprise group (such as fee income and reduced interest expenses; hereinafter the same shall apply in this Article): <Amended on Feb. 29, 2024>

1. A transaction that generates benefits for cash pool participants and the cash pool leader as the consistent entities, not the cash pool leader (hereinafter referred to as "cash pool participants") transfer funds to or receive money from the cash pool leader's deposit account (hereinafter referred to as "master cash-pooling account");

2. A transaction that generates benefits for cash pool participants and the cash pool leader or for cash pool participants as the cash pool leader essentially centralize cash management within the enterprise group without opening and holding a master cash-pooling account by facilitating money lending among cash pool participants or raising money from financial companies, etc. based on the cumulative amounts held in the deposit account of each cash pool participant.

(2) In applying an arm's length pricing method under Article 8 of the Act to cash pooling transactions, the following formula shall be followed:

1. The respective benefits obtained by both the cash pool leader and cash pool participants from the cash pooling transaction shall be taken into consideration;

2. When calculating the benefits for the cash pool leader, the following methods shall be applied:

(a) Where the cash pool leader actively centralizes cash management by formulating a funding strategy and managing liquidity, credit risk, liquidity risk, and the risk of exchange rate fluctuations at the enterprise group level: Arm's length pricing methods for monetary loan transactions under Article 11;

(b) In cases other than those provided in item (a): Arms' length pricing methods for intra-group services under Article 12;

3. When calculating benefits for cash pool participants, the following methods shall be applied:

(a) In cases of cash pooling transactions under paragraph (1) 1: Arm's length pricing methods for monetary loan transactions under Article 11. In such cases, matters prescribed by Decree of the Ministry of Economy and Finance, such as the period of cash pooling transactions and risk management policies at the enterprise group level shall be taken into consideration;

(b) In cases of cash pooling transactions under paragraph (1) 2: Arm's length pricing methods in consideration of matters prescribed by Decree of the Ministry of Economy and Finance, such as expected benefits for and level of contributions by cash pool participants.

[This Article Added on Feb. 15, 2022]

Article 12(Arm's length pricing methods for intra-group services) #

(1) Where the cost plus method under Article 8 (1) 3 of the Act or the transactional net margin method under Article 8 (1) 3 of this Decree is applied to an arm's length pricing for intra-group services (referring to business management, financial consulting, payment guarantee, computational and technical support, or any other intra-group service deemed necessary for business; hereafter in this Article the same shall apply) between a resident and a foreign related party, it shall be calculated according to the following criteria:

1. The cost incurred shall include all expenses incurred directly or indirectly in providing the service;

2. Where the service provider requests a third party to perform all or part of the service on his or her behalf, pays the price therefor in lump sum, and then reclaims such expenses from the service recipient, the service provider shall add a normal profit to the cost generated from the activities that the service provider performs on his or her own in connection with the service; provided, the same shall not apply, if deemed reasonable in light of the details of the service, circumstances of the transaction, and customary practices.

(2) Where a resident applies an amount calculated by adding five percent to the cost of the relevant service as the price for intra-group services regarding the intra-group services satisfying all of the following requirements (hereafter in this Article referred to as "low value-added intra-group services"), such price shall be deemed an arm's length price. In such cases, the cost of the relevant service shall be calculated in accordance with the criteria prescribed in the subparagraphs of paragraph (1):

1. The services subject to a transaction shall not fall under any of the following and be of a supportive nature not directly related to the core business activities of residents and foreign related parties:

(a) Research and development;

(b) Exploration, collection, and processing of natural resources;

(d) Finance, insurance, and reinsurance;

2. Any of the following facts shall not exist in the course of providing services:

(a) Use or creation of unique and valuable intangible assets;

(b) A service provider shall assume or manage and control serious risks;

3. Neither service provider nor service recipient shall engage in any similar intra-group service with a third party that has no special relationship.

(3) Where the aggregate of the amounts calculated by adding five percent to the cost of low value-added intra-group services for the relevant taxable year exceeds the amount prescribed by Decree of the Ministry of Economy and Finance, paragraph (2) shall not apply.

(4) In applying Article 8 (1) 6 of the Act as an arm's length pricing method for an intra-group payment guarantee among intra-group services between a resident and a foreign related party, any of the following methods shall apply:

1. Arm's length pricing method based on the anticipated risks of, and expenses to be incurred by, the guarantor;

2. Arm's length pricing method based on the expected benefits of the principal;

3. Arm's length pricing method based on the anticipated risks of, and expenses to be incurred by, the guarantor and the expected benefits of the principal.

(5) Where a resident applies any of the following amounts to the price for an intra-group payment guarantee in the application of paragraph (4), such amount shall be deemed an arm's length price:

1. The amount of fees computed by the relevant financial company based on the difference in interest rates that depend on the existence of a payment guarantee at the time of concluding the payment guarantee agreement (applicable only to the amount of fees verified by a statement on the difference in interest rates prepared by the relevant financial company);

2. The amount of fees computed according to the method prescribed in the subparagraphs of paragraph (4), as determined by the Commissioner of the National Tax Service.

(6) For the purposes of paragraphs (4) and (5), detailed matters concerning the computation of anticipated risks and expenses, expected benefits, etc. shall be prescribed by Decree of the Ministry of Economy and Finance.

(7) Where an intra-group service between a resident and a foreign related party fails to meet any of the following requirements, expenses incurred in providing such service shall not be included in necessary expenses or deductible expenses:

1. The service provider shall conclude an agreement in advance and actually provide such service in accordance with the agreement;

2. The service recipient shall be able to anticipate additional profits or expense savings by using that service;

3. Another related party itself shall not perform the same service as the one provided to the service recipient, or an unrelated third party shall not provide the service for another related party; provided, the same shall not apply where the service provided is temporarily overlapped on any reasonable grounds, such as reorganization of the business or organizational structure, restructuring, an effort to reduce errors in making decisions on business management;

4. Documents substantiating the facts referred to in subparagraphs 1 and 2 shall be retained and kept.

Article 13(Arm's length pricing methods for transaction of intangible assets) #

(1) "Intangible asset" in this Article means any of the following assets available for business activities (referring to those other than tangible or financial assets), which are capable of being owned or controlled by a particular person and whose use or transfer would be properly compensated had it occurred between independent unrelated business entities:

1. A patent right under the Patent Act;

2. A utility model right under the Utility Model Act;

3. A design right under the Design Protection Act;

4. A trademark right under the Trademark Act;

5. A copyright under the Copyright Act;

6. A service mark right, trade name, brand, know-how, trade secret, customer information, or customer network;

7. A contractual right or a concession granted by the Government, such as a concession for extraction and a concession for the management of toll roads;

8. Good will or going concern value.

(2) In computing an arm's length price for a transaction of an intangible asset between a resident and a foreign related party, the following factors shall be taken into consideration:

1. Whether appropriate compensation deemed applicable to independent unrelated business entities is paid corresponding to the functions performed in connection with the development, enhancement, maintenance, protection, and exploitation of the relevant intangible asset and to the relative importance of contribution to the generation of income, regardless of the legal ownership of the relevant intangible asset;

2. The following factors depending on the characteristics of the transaction:

(a) The amount of additional income expected to be generated from or expense savings anticipated to result from the intangible asset;

(b) Whether there is any restriction on the exercise of rights;

(3) As an arm's length pricing method for a transaction of an intangible asset between a resident and a foreign related party, either of the following methods shall be preferentially applied, taking into consideration the standards prescribed in Article 14 (1):

1. The comparable uncontrolled price method under Article 8 (1) 1 of the Act;

2. The profit split method under Article 8 (1) 5 of the Act.

(4) In applying Article 8 (1) 6 of the Act as an arm's length pricing method for a transaction of an intangible asset between a resident and a foreign related party, the valuation method shall calculate the present value by discounting the projected future cash flows attributable to the exploitation of the relevant intangible asset. In such cases, the projected future cash flows, growth rate, discount rate, service life and residual value of the intangible asset, tax burden, and other factors shall be collected or computed in an objective and reasonable manner, and a resident shall retain and keep data substantiating such fact.

(5) Where there is a substantial difference between the ex ante price and ex post price of a hard-to-value intangible asset that meets all of the following requirements, such as exceeding 20 percent of the ex ante price of the intangible asset, the tax authority may presume that the relevant price is not rational and may compute the arm's length price again, based on the circumstances of the transaction, economic conditions, etc. that changed after the transaction in relation to the intangible asset, such as the economic benefits actually generated from the relevant intangible asset:

1. There shall be no highly comparable transaction between independent unrelated business entities at the time of transaction of the intangible asset;

2. It shall take a long time for the intangible asset under development to be exploited commercially or there shall be a high uncertainty of economic benefits, etc. expected to be generated from the relevant intangible asset at the time of the transaction due to a high innovativeness of the intangible asset.

(6) Paragraph (5) shall not apply in any of the following cases:

1. Where the difference between the ex ante price and ex post price of an intangible asset is caused by any ground reasonably unforeseeable by the parties to the transaction at the time the transaction occurs and where it is proved that the assumptions for projections, which are made by the parties at the time of the relevant transaction, are reasonable;

2. Where the difference between the ex ante price and the ex post facto price of an intangible asset does not exceed 20 percent of the ex ante price;

3. Where an advance pricing agreement has been approved through mutual agreement with the competent authority of the other Contracting State pursuant to the main clause of Article 14 (2) of the Act on an arm's length pricing method for a transaction of intangible assets.

Article 14(Selection of arm's length pricing method) #

(1) In computing the arm's length price under Article 8 (1) of the Act, the most reasonable means shall be selected by taking into account the following standards:

1. In any of the following cases, where the level of comparability between the international transactions of related parties and those of unrelated parties shall be high:

(a) Where a difference in the circumstances being compared has no significant effect on the pricing or net profit of transactions being compared;

(b) Even where the difference in the circumstances being compared has a significant effect on the pricing or net profit of transactions being compared, a reasonably appropriate adjustment can be made to eliminate the effects of such difference;

2. It shall be highly likely to secure and use the data to be used;

3. Assumptions on the economic conditions, business environment, etc., which are made to compare international transactions between related parties with those between the unrelated parties, shall be closely aligned with realities;

4. Defects in the data to be used or in the established assumption shall have a minor effect on the calculated arm's length price;

5. The arm's length pricing method shall be highly appropriate for international transactions between related parties.

(2) In evaluating whether a high comparability exists under paragraph (1) 1, matters prescribed by Decree of the Ministry of Economy and Finance regarding the types and characteristics of goods or services that may affect prices or profits, functions of business activities, risks accompanying transactions, assets to be used, contractual terms and conditions, economic situations, business strategies, etc. shall be analyzed.

(3) In assessing whether there is a high appropriateness under paragraph (1) 5, which indicators, among the price, profit, or net profit, are easier to compute in a related party transaction, whether the factors to differentiate a related party transaction are goods or services being dealt with or characteristics of the functions being conducted, the correlation between the transactional net margin indicators and business activities in applying the transactional net margin method, etc. shall be analyzed as prescribed by Decree of the Ministry of Economy and Finance.

(4) Where a transaction between unrelated parties cannot be treated as a normal transaction because it is willfully fabricated by the parties involved, the tax authority need not select such transaction as a comparable transaction.

Article 15(Application of arm's length pricing method) #

(1) In calculating an arm's length price based on the selection of the most reasonable method pursuant to Article 14 (1), such computation shall undergo the analysis procedures, such as analyzing the business environment of a taxpayer and related party transactions, collecting data on internal and external comparable transactions, selecting an arm's length pricing method, computing the price, profit, or net profit, selecting comparable transactions, and making reasonable adjustment of difference, as prescribed by Decree of the Ministry of Economy and Finance.

(2) In applying an arm's length pricing method pursuant to Article 8 (1) of the Act, where it is unreasonable to compute the price, profit, or net profit for each individual transaction because the individual transactions are closely linked or consecutively conducted, such individual transactions may be assessed in a consolidated manner.

(3) In applying an arm's length pricing method pursuant to Article 8 (1) of the Act, where it is not reasonable to compute the price, profit, or net profit from the pertinent fiscal year’s data alone since it has been affected by economic conditions, business strategies, etc. over a number of years, data covering several fiscal years may be used.

(4) In computing an arm's length price pursuant to Article 8 of the Act, where any difference occurs in the applicable price, profit, or net profit because of differences in the factors of comparability analysis under Article 14 (2), the relevant difference in the price, profit, or net profit shall be reasonably adjusted.

(5) In computing an arm's length price pursuant to Article 8 of the Act, the scope of the arm's length price may be calculated based on at least two transactions between unrelated parties to be used where a resident determines whether to file a report based on the arm's length price under Article 6 of the Act or the tax authority decides on determination or rectification based on the arm's length price under Article 7 of the Act.

(6) Where a resident or the tax authority files a report or makes determination, rectification, etc. pursuant to Article 6 or 7 of the Act with respect to a transfer price deviating from the scope of arm's length price under paragraph (5), it shall be based on the average price, median price, mode price, and other reasonable specific prices, calculated in transactions within the relevant scope of arm's length price.

(7) Where it is necessary to consider specific economic crisis situations, such as economic recession and mass unemployment, in calculating the arm's length price pursuant to Article 8 (1) of the Act, transactions in which either one of or both parties suffer a loss due to changes in economic circumstances may be compared with transactions between a resident and a foreign related party. <Added on Feb. 15, 2022>

Article 16(Substantial content and commercial rationality of transactions with foreign related parties) #

(1) The tax authority shall consider the following factors to clearly grasp the substantial content of an international transaction between a resident and a foreign related party under Article 8 (2) of the Act:

1. Terms and conditions of the contract;

2. Functions performed by the parties to a transaction, in consideration of the assets used, risks assumed, and other factors. In such cases, the risks assumed shall be analyzed, taking into consideration activities of the parties to the transaction for the management and control of risks, financial capacity to assume the risks, etc., as prescribed by Decree of the Ministry of Economy and Finance, and the methods of performance of overall business activities, the status of transactions, and practices of not only the parties to the transaction but also all related parties shall be comprehensively considered in assessing the functions performed by the parties to the transaction;

3. The types and characteristics of the traded goods or services;

4. Economic conditions and business strategies.

(2) In deciding on whether an international transaction between a resident and a foreign related party is a commercially rational transaction pursuant to Article 8 (2) and (3) of the Act, the tax authority shall consider the following standards:

1. It shall be foreseeable that independent unrelated business entities are unlikely to agree on the relevant terms and conditions of transaction. In such cases, it shall not be concluded that it is unlikely to reach an agreement merely on the fact that any transaction similar to the relevant transaction has never been entered into by and between independent unrelated business entities in similar transaction conditions;

2. Refraining from entering into the relevant transaction or entering into the relevant transaction in any other manner shall be more beneficial to the resident or the foreign related party for the purpose of business;

3. It shall be foreseeable that the relevant transaction would not occur, if tax advantage was not taken into consideration, such as a substantial reduction of the tax burden on the resident or the foreign related party as a consequence of the relevant transaction.

Article 22(Verification of return of amount to be included in gains) #

(1) "Where it is not verified that ... has been returned by a foreign related party to such corporation as prescribed by Presidential Decree" in Article 13 (1) of the Act means cases where a document verifying that the amount which a foreign related party intends to return to a domestic corporation (referring to a certificate of return of transferred income prescribed by Decree of the Ministry of Economy and Finance) out of the amount to be included in gains of a domestic corporation pursuant to Articles 6, 7, 9, 12, and 15 of the Act (hereinafter referred to as "amount included in gains") plus interests for return calculated pursuant to paragraph (2) were returned has not been submitted to the tax authority within 90 days from the date classified as follows:

1. Where a domestic corporation reports the tax base and tax amount pursuant to Articles 6, 9, 12, and 15 of the Act: The date of reporting;

2. Where the tax authority determines or rectifies the tax base and tax amount pursuant to Article 7, 9, 12, and 15 of the Act: The date of receipt of a notice of temporary secondary adjustment under Article 24 (2) (where the mutual agreement procedure under Article 45 of the Act commences within 90 days from the date of receipt of such notice, referring to the date of being notified of the results under Article 47 (2)).

(2) The interest for return, which is added to the amount a foreign related party intends to return to a domestic corporation pursuant to paragraph (1), shall be calculated according to the following formula:

┌─────────────────────────────────────────────────┐

│ Interests for return = Amount to be returned × period from the day following the end of the fiscal year in which the trading day falls, │

│ to the date transferred income is returned ? interest rate prescribed by Decree of the Ministry of Economy and Finance, │

│ considering the prevailing interest rate in the international financial market ÷ 365 (366 for a leap year) │

└────────────────────────────────────────────────┘

</img>

(3) Where some of the amount included in gains is returned to a domestic corporation by a foreign related party, an amount (including interest for return thereof) accrued earlier in the order of accrual of the amount included in gains shall be deemed returned.

Article 23(Disposition and adjustment of amount whose return is not verified) #

(1) Where the return under Article 22 is not verifiable, the amount whose return has not been verified shall be disposed of or adjusted as follows:

1. Where a foreign related party, who is the other party to an international transaction, is a corporation in which the relevant domestic corporation invests (including cases where the party falls under Article 2 (2) 1 (a)): An increase of investment in the foreign related party;

2. Where a foreign related party, who is the other party to an international transaction, is a stockholder of the relevant domestic corporation (including cases where the party falls under Article 2 (2) 1 (b)): A dividend vested in the foreign related party;

3. Where a foreign related party, who is the other party to an international transaction, is a person other than those prescribed in subparagraphs 1 and 2: A dividend vested in the foreign related party.

(2) Where the tax authority makes a disposition or adjustment pursuant to paragraph (1), it shall notify such fact by applying mutatis mutandis Article 192 (1) and (4) of the Enforcement Decree of the Income Tax Act within 15 days from the expiry of the deadline for submitting a certificate of return of transferred income under Article 22 (1). In such cases, the notice shall be made via a notice of transferred income prescribed by Decree of the Ministry of Economy and Finance (hereinafter referred to as "notice of transferred income").

(3) Where any disposition under paragraph (1) has been made, any dividend shall be deemed paid on the date the notice of transferred income under paragraph (2) is received. <Amended on Feb. 28, 2023>

(4) The amount disposed of as a domestic corporation’s retained earnings, which was deemed a loan to a foreign related party under paragraph (1) 3 before May 24, 2006, because it had not been returned by the foreign related party to a domestic corporation, out of the amount included in gains may be disposed of by the domestic corporation as a dividend under paragraph (1) 3.

Article 25(Special cases concerning exclusion from application of temporary secondary adjustment) #

(1) Notwithstanding Articles 22 (1) and 24 (1), in any of the following cases, a disposition or adjustment shall be made pursuant to the subparagraphs of Article 23 (1) of the amount included in gains which is not verified to be returned to a domestic corporation by a foreign related party as at the time a domestic corporation or tax authority reports, determines, or rectifies the tax base and tax amount pursuant to Articles 6, 7, 9, 12, and 15 of the Act without undergoing a temporary secondary adjustment: <Amended on Feb. 28, 2023>

1. Where the relevant domestic corporation submits to the tax authority a written request to dispose of transferred income prescribed by Decree of the Ministry of Economy and Finance;

2. Where the relevant domestic corporation closes its business (including de facto business closure);

3. Where the statute of limitations period for tax assessment expires within four months from the date the tax authority determines or rectifies the tax base and tax amount pursuant to Article 7, 9, 12, or 15 of the Act.

4. Where the domestic corporation intends to dispose of or adjust the amount not verified to be returned to the domestic corporation by the foreign related party out of the amount included in gains at the time of filing the tax base and tax amount pursuant to the subparagraphs of Article 23 (1), instead of making a temporary secondary adjustment of the amount.

(2) Where any cause falling under paragraph (1) 1 or 2 occurs after making a temporary secondary adjustment pursuant to Article 24 (1), a new disposition or adjustment shall be made pursuant to the subparagraphs of Article 23 (1).

(3) Where the tax authority makes a disposition or adjustment pursuant to paragraph (1) or (2), it shall notify such fact by applying mutatis mutandis Article 192 (1) and (4) of the Enforcement Decree of the Income Tax Act within 15 days from the date it determines or rectifies the tax base and tax amount pursuant to Article 7, 9, 12, or 15 of the Act. In such cases, the notice shall be made via a notice of transferred income.

(4) Where a disposition is made under paragraph (1) or (2), dividends shall be deemed paid on the dates classified as follows: <Amended on Feb. 28, 2023>

1. Where the domestic corporation makes the disposition under paragraph (1) or (2): The date on which the domestic corporation reports the tax base and tax amount;

2. Where the tax authority makes the disposition under paragraph (1) or (2): The date on which the domestic corporation receives a notice of transferred income under paragraph (3).

(5) Where a taxpayer submits a certificate of return of transferred income under Article 22 (1) within 90 days from the date of receipt of a notice of transferred income pursuant to paragraph (3), it shall be deemed that no disposition or adjustment under paragraph (1) or (2) has been made.

Article 26(Application for advance pricing agreements) #

(1) A resident who files an application for an advance pricing agreement under Article 14 (1) of the Act (hereafter in this Sub-section referred to as "applicant") shall submit a written application for an advance pricing agreement prescribed by Decree of the Ministry of Economy and Finance to the Commissioner of the National Tax Service regarding all or part of his or her international transactions, along with the following documents, by the day immediately preceding the start date of the first taxable year of the proposed period of the advance pricing agreement. In such cases, documents falling under subparagraph 3 may be submitted in an electronic data storage medium, such as portable storage devices:

1. Data explaining the business history, business details, organization, investment relationships, etc. of the parties to the transactions;

2. Financial statements, copies of tax returns, and copies of the contracts for international transactions, and other accompanying documents of the parties to the transactions for the last three years;

3. The following documents elaborating on the details of the arm's length pricing method:

(a) The methods to evaluate comparability and to adjust the difference by factor under Articles 14 (2) and 15 (4);

(b) Where the financial statements of comparable companies are used, the difference in the accounting standards applied and the method for adjustment thereof;

(d) Where at least two comparable transactions are used, the range of arm's length price and its calculation method;

(e) Data explaining the conditions or assumptions underlying the arm's length pricing method;

4. Data explaining how to adjust the difference between the international transfer price and the arm’s length price;

5. Where an application is filed for mutual agreement with the other Contracting State regarding the arm's length pricing method proposed by the applicant, an application for commencing the mutual agreement procedure prescribed by Decree of the Ministry of Economy and Finance;

6. Other data proving the appropriateness of the arm's length pricing method proposed by the applicant.

(2) Where the documents submitted to the competent authority of the other Contracting State are different from those submitted under paragraph (1), the applicant shall additionally submit the documents submitted to the competent authority of the other Contracting State.

(3) The proposed period of the advance pricing agreement shall be the period during which the taxpayer intends to enter into the advance pricing agreement.

(4) The applicant may amend the details of his or her application for an advance pricing agreement or withdraw his or her application before the Commissioner of the National Tax Service approves the application. In such cases, where the application is withdrawn, the Commissioner of the National Tax Service shall return all data submitted under paragraph (1) or (2) to the applicant.

(5) The Commissioner of the National Tax Service shall not use any data submitted under paragraph (1) or (2) for purposes other than review of applications for an advance pricing agreement, ex post facto management, and exchange of information with the competent authority of the other Contracting State.

(6) Where a resident or a foreign related party files an application for an advance pricing agreement corresponding to Article 14 of the Act to the competent authority of the other Contracting State, and where it is necessary to commence a mutual agreement procedure with the Republic of Korea, the relevant resident shall, without delay, file an application for an advance pricing agreement with the Commissioner of the National Tax Service pursuant to Article 14 of the Act.

Article 28(Procedures for advance pricing agreement based on mutual agreement procedure) #

(1) Where the Commissioner of National Tax Service rejects an application for an advance pricing agreement as deemed inappropriate, he or she shall return to the applicant all data submitted under Article 26 (1) or (2).

(2) Where the applicant applies for commencing a mutual agreement procedure at the time of applying for an advance pricing agreement, the Commissioner of National Tax Service shall request the competent authority of the other Contracting State to commence the mutual agreement procedure and shall notify the applicant of such request.

(3) Where an agreement is made with the other Contracting State in the mutual agreement procedure requested under paragraph (2), the Commissioner of the National Tax Service shall notify the applicant of the details of the agreement within 15 days from the date following the end date of the mutual agreement procedure.

(4) The applicant shall submit in writing whether he or she consents thereto to the Commissioner of the National Tax Service within two months from the date of receiving a notification under paragraph (3).

(5) Where the applicant consents to the details agreed under the mutual agreement procedure pursuant to paragraph (4), he or she shall be deemed to have applied for the relevant details from the outset, even if they are not identical with the original content of the application for an advance pricing arrangement.

(6) Upon receipt of a letter of consent to the details of mutual agreement from the applicant pursuant to paragraph (4), the Commissioner of the National Tax Service shall accept the application for an advance pricing arrangement within 15 days from the date of receiving the letter and shall notify the applicant thereof.

(7) Where the applicant fails to notify the Commissioner of the National Tax Service of whether he or she consents thereto by the deadline specified under paragraph (4), it shall be deemed that he or she has not consented, and the original application for an advance pricing arrangement shall be deemed withdrawn by the applicant.

(8) In any of the following cases, the Commissioner of the National Tax Service shall notify the applicant of discontinuation of the mutual agreement procedure within 15 days from the date the following cases occur:

1. Where the Commissioner of the National Tax Service discontinues the mutual agreement procedure ex officio, because no mutual agreement has been reached within three years from the date of receiving an application for an advance pricing agreement;

2. Where it is agreed to end the mutual agreement procedure with the other Contracting State, because the parties cannot reach an agreement under the mutual agreement procedure.

Article 34(Submission of master file and local files) #

(1) "Taxpayer who meets the requirements prescribed by Presidential Decree" in Article 16 (1) 1 of the Act means a domestic corporation or a foreign corporation having a domestic place of business, which is a taxpayer meeting all of the following requirements. In such cases, where a taxpayer is a foreign corporation having a domestic place of business, the following requirements shall be determined on the basis of the domestic place of business of the foreign corporation: <Amended on Feb. 28, 2023>

1. The turnover in the relevant taxable year shall exceed 100 billion won;

2. The total volume of transactions of goods and services, intangible asset transactions and lending transactions (hereafter in this Article referred to as "transaction volume") with a foreign related party in the relevant taxable year shall exceed 50 billion won. In such cases, the transaction volume with the head office and overseas branch offices of such foreign corporation (hereinafter referred to as "head office or branch office") shall be included when calculating the sum of transaction volume, in cases of a domestic place of business of the foreign corporation.

(2) Where at least two taxpayers under paragraph (1) prepare the same Master File, a taxpayer prescribed by Decree of the Ministry of Economy and Finance among the relevant taxpayers may submit such Master File as a representative.

(3) The Master File and Local Files shall be prepared in Korean and be submitted via the information and communications network under subparagraph 18 of Article 2 of the Framework Act on National Taxes (hereinafter referred to as "information and communications network").

(4) Notwithstanding paragraph (3), the Master File may be prepared and submitted in English. In such cases, the Master File prepared in Korean shall be additionally submitted within one month from the date of submission.

(5) Except as provided in paragraphs (1) through (4), matters necessary for the methods of calculating the aggregate of the turnover and transaction volume for the relevant taxable year, the detailed methods for preparing the Master File and the Local Files and others shall be prescribed by Decree of the Ministry of Economy and Finance.

Article 35(Submission of country-by-country report) #

(1) "Taxpayer who meets the requirements prescribed by Presidential Decree" in Article 16 (1) 2 of the Act means taxpayers classified as follows:

1. Where the ultimate parent company prescribed by Decree of the Ministry of Economy and Finance (hereafter in this Article referred to as "ultimate parent company") is located in the Republic of Korea and the turnover in consolidated financial statements for the immediately preceding taxable year exceeds one trillion won: The ultimate parent company in the Republic of Korea;

2. Where the ultimate parent company is located in a foreign country and the turnover on consolidated financial statements for the immediately preceding taxable year exceeds the following amounts: A related company prescribed by Decree of the Ministry of Economy and Finance in the Republic of Korea (hereafter in this Article referred to as "domestic related company"):

(a) Where it is obligated to submit a Country-by-Country Report under the statutes or regulations of the country in which the ultimate parent company is located: The amount prescribed by the relevant statutes or regulations;

(b) Where it is not obligated to submit a Country-by-Country Report under the statutes or regulations of the country in which the ultimate parent company is located: 750 million euros.

(2) A domestic ultimate parent company and a domestic related company shall submit (including submission via the information and communications networks) data prescribed by Decree of the Ministry of Economy and Finance, which are about a person obligated to submit a Country-by-Country Report, to the head of the tax office having jurisdiction over the place for tax payment, within six months from the last day of the month in which the end date of each fiscal year falls.

(3) A domestic related company which has submitted the data under paragraph (2) by the deadline for submission need not submit a Country-by-Country Report in any of the following cases:

1. Where it is obligated to submit a Country-by-Country Report under the statutes or regulations of the country in which the ultimate parent company is located and such Country-by-Country Report is exchanged with the Republic of Korea according to a tax treaty;

2. Where another domestic related company submits a Country-by-Country Report representatively;

3. Where the ultimate parent company requires a related company located in a third country to submit a Country-by-Country Report to the relevant country on its behalf and such Country-by-Country Report is exchanged with the Republic of Korea according to a tax treaty.

(4) A Country-by-Country Report shall be prepared in Korean and English and be submitted through the information and communications networks.

(5) Except as provided in paragraphs (1) through (4), matters necessary for the methods for calculating the turnover in consolidated financial statements for the immediately preceding taxable year, the detailed methods for preparing a Country-by-Country Report and others shall be prescribed by Decree of the Ministry of Economy and Finance.

Article 36(Exemption from obligation to submit data on international transactions) #

"Requirements prescribed by Presidential Decree" in the proviso, with the exception of the subparagraphs, of Article 16 (2) of the Act means the following requirements:

1. Exemption from the obligation to submit a statement of international transactions under Article 16 (2) 1 of the Act: The aggregate amount of transactions by type of international transactions with foreign related parties in the relevant fiscal year shall meet all of the following requirements:

(a) Aggregate amount of goods transactions: Up to 500 million won;

(b) Aggregate amount of service transactions: Up to 100 million won;

2. Exemption from the obligation to submit a summary income statement under Article 16 (2) 2 of the Act: In any of the following cases:

(a) The aggregate amount of transactions by type of international transactions with the foreign related party in the relevant fiscal year shall meet all of the following requirements:

(i) Aggregate amount of goods transactions: Up to one billion won;

(ii) Aggregate amount of service transactions: Up to 200 million won;

(iii) Aggregate amount of intangible asset transactions: Up to 200 million won.

(b) The business profile of an overseas subsidiary and a statement of financial position of an overseas subsidiary under Article 98 (1) shall be submitted;

3. Exemption from the obligation to submit a report on arm's length pricing method under Article 16 (2) 3 of the Act: In any of the following cases:

(a) The aggregate amount of transactions by type of international transactions in the relevant fiscal year shall meet all of the following requirements:

(i) Aggregate amount of goods transactions: Up to five billion won;

(ii) Aggregate amount of service transactions: Up to one billion won;

(iii) Aggregate of intangible asset transactions: Up to one billion won;

(b) Each foreign related party's aggregate amount of transactions in the relevant fiscal year by type of international transactions with foreign related parties shall meet all of the following requirements:

(i) Aggregate amount of goods transactions: Up to one billion won;

(ii) Aggregate amount of service transactions: Up to 200 million won;

(iii) Aggregate amount of intangible asset transactions: Up to 200 million won.

[This Article Wholly Amended on Feb. 28, 2023]

Article 38(Scope of data requested by tax authority and method of submission thereof) #

(1) The scope of data that the tax authority may require a taxpayer to submit pursuant to Article 16 (4) of the Act shall be the following data which are about a taxpayer or his or her foreign related party: <Amended on Feb. 15, 2022; Feb. 28, 2025>

1. The organizational chart of a corporation and a table of assignment of office duties;

2. Details of business activities of the parties involved in the relevant transactions;

3. Current status of mutual investments with related parties;

4. Various relevant contract documents concerning the transfer, purchase, etc. of assets;

5. A price list of products;

6. A statement of manufacturing costs;

7. A statement of transaction by item, in which related and unrelated parties are separately assorted;

8. Documents corresponding to data prescribed in subparagraphs 4 through 7, in cases of the provision of services or other transactions;

9. Data for determining international transfer prices;

10. Internal guidelines for pricing applicable to transactions among the related parties;

11. Accounting standards and methods relating to the relevant transactions;

12. Data prescribed by Decree of the Ministry of Economy and Finance, with which it is possible to grasp the details of transactions in connection with intra-group services under Article 12;

13. Data prescribed by Decree of the Ministry of Economy and Finance, such as cost sharing agreements, in connection with determination and rectification based on arm's length cost contribution, etc. under Article 9 of the Act;

14. Forms or items omitted in filing returns on the corporate tax or income tax;

15. Segmented income statement and segmented balance sheet by international transaction.

(2) "Data prescribed by Presidential Decree" in Article 16 (7) of the Act means the data provided in paragraph (1) 4 through 15. <Amended on Feb. 28, 2025>

(3) Data falling under paragraphs (1) and (2) shall be prepared and submitted in Korean; provided, if permitted by the tax authority, the data prepared in English maybe submitted.

Article 39(Determination on negligence of taxpayers) #

(1) In determining whether a taxpayer has been negligent pursuant to Article 17 (1) 1 and 2 of the Act, the taxpayer shall not be deemed negligent where he or she meets all the following requirements:

1. The taxpayer shall suggest the process through which he or she selected the most reasonable means, from among those provided in the subparagraphs of Article 8 (1) of the Act, through the documents prepared at the time of filing a final return on tax base and tax amount;

2. The taxpayer shall actually apply the method selected under subparagraph 1;

3. The taxpayer shall retain and keep necessary data regarding the arm's length pricing method under subparagraphs 1 and 2.

(2) Data verifying the arm's length pricing method under Article 17 (1) 3 of the Act refer to the following data, and a taxpayer shall, upon request by the tax authority, submit the data within 30 days from the date of receipt of such request:

1. Data describing the outline of business (including the data analyzing the factors that have influence over the prices of assets and services);

2. Data describing the structures, etc. with foreign related parties and other relevant persons having influence over the transfer pricing;

3. The following data verifying the details about how to select the arm's length pricing method applied in filing a return:

(a) Data on economic analysis and prediction, which have served as a basis for selecting the arm's length pricing method applied in filing a return;

(b) Data describing the numerical values being the objects used for computing the arm's length price and the details of adjustment in the course of comparison and evaluation of the numerical values;

(c) Data describing the arm's length pricing method that could have been applied as an alternative and the reason the alternative was not selected;

(d) Relevant data, etc. added in order to compute the arm's length price when filing a return on the income tax or corporate tax after the expiration of the taxable period.

(3) Whether a taxpayer has made rational decisions under Article 17 (1) 3 of the Act shall be determined in consideration of the following requirements:

1. The numerical values being compared, which have been collected at the time of expiration of the taxable period, shall be representative data, and none of the particular numerical values being compared which must be included has been omitted, thus not leading to any results favorable to the taxpayer;

2. The arm's length pricing method has been selected and applied after systematically analyzing the collected data;

3. Although there was an arm's length pricing method agreed under an advance pricing agreement in the previous taxable year or one selected in the course of tax investigation by the tax authority, there shall be justifiable reasons for selecting and applying another arm's length pricing method if such method has been selected and applied.

(4) Where a resident whose application for an advance pricing agreement has been approved under Article 14 of the Act files a revised return on the tax base and tax amount of the corporate tax pursuant to Article 31, no penalty tax shall be imposed pursuant to Article 17 of the Act.

(5) Where important data related to the arm's length pricing method that could not be verified at the time of filing a return are verified after the filing deadline, no penalty tax shall be imposed pursuant to Article 17 of the Act if the relevant person files a revised return on the tax base and tax amount of the corporate tax within 60 days from the time he or she becomes aware of such fact. In such cases, paragraphs (2) and (3) shall apply mutatis mutandis to the revised return.

Article 40(Procedures for pre-adjustment) #

(1) Upon receipt of an application for pre-adjustment of the arm’s length price for national tax and the customs value under Article 18 (1) of the Act (hereafter in this Article referred to as "pre-adjustment"), the Commissioner of the National Tax Service shall commence the pre-adjustment procedure under paragraph (2) of that Article within 90 days from the date of receipt of the application and shall notify the applicant of such fact; provided, where the data under Article 26 (1) and (2) are not submitted or falsely prepared or other grounds exist that make it impractical to commence the procedures for pre-adjustment, he or she shall notify the applicant of such grounds.

(2) Upon receipt of notification that the Commissioner of the National Tax Service is unable to commence the procedures for pre-adjustment under the proviso of paragraph (1), the applicant may, within 30 days from the date of receipt of such notification, supplement and submit the relevant data or notify the Commissioner of the National Tax Service whether he or she will separately follow the procedures for unilateral advance pricing agreement and an advance ruling on the matters referred to in Article 37 (1) 3 of the Customs Act. In such cases, the Commissioner of the National Tax Service upon receipt of such notification shall, without delay, inform the Commissioner of the Korea Customs Service of the matters notified.

(3) The Commissioner of the National Tax Service and the Commissioner of the Korea Customs Service may jointly organize and operate a consultative council to conduct pre-adjustment.

(4) Articles 26, 27, and 29 through 32 of this Decree and Article 31 of the Enforcement Decree of the Customs Act shall apply mutatis mutandis to the methods, procedures, etc. for filing applications for pre-adjustment under Article 18 (5) of the Act.

(5) Except as provided in paragraphs (1) through (4), matters necessary for conducting pre-adjustment and other matters necessary for pre-adjustment shall be prescribed by Decree of the Ministry of Economy and Finance.

Article 43(Application for adjustment of taxation on arm’s length prices for national taxes and customs value) #

(1) A taxpayer who intends to apply for adjustment of the arm’s length price for national tax and the customs value pursuant to Article 20 (1) of the Act shall submit an application for tax adjustment for the international transfer price stating the following matters, along with the relevant evidentiary materials:

1. The name and address or residence of the applicant;

2. Details of disposition for rectification issued by the head of a customs office;

3. Grounds for, and details of, the application filed for tax adjustment;

4. Other matters necessary for adjusting the arm’s length price for national tax and the customs value.

(2) Where a transaction for which an application for adjustment of taxation is filed falls under any of the following cases, the Minister of Economy and Finance may not recommend the adjustment: <Amended on Feb. 15, 2022>

1. Where an objection, a request for examination, or a request for ruling is filed under Article 55 of the Framework Act on National Taxes and Article 119 of the Customs Act, or a request for examination is filed under Article 43 of the Board of Audit and Inspection Act, or an administrative suit is pending under the Administrative Litigation Act, regarding the relevant transaction;

2. Where the relevant transaction has been subject to the advance pricing agreement under Article 14 of the Act and the advance rulings on method for customs valuation under Article 37 of the Customs Act;

3. Where the mutual agreement procedure under Article 42 of the Act and a tax treaty is pending or ended regarding the relevant transaction;

4. Where it is deemed impracticable to recommend the adjustment for reasons such as a difference in computation methods of the arm's length price for the national tax and the customs value.

(3) Where the Minister of Economy and Finance does not recommend adjustment under paragraph (2), he or she shall notify the taxpayer of the details thereof. <Added on Feb. 15, 2022; Feb. 28, 2025>

(4) Where the Minister of Economy and Finance deems that the details of an application for adjustment of taxation filed under paragraph (1) and the basis for calculating the customs value, etc. are not clearly stated, he or she may request the taxpayer, the Commissioner of the National Tax Service, or the Commissioner of the Korea Customs Service to make corrections within a reasonable period. <Amended on Feb. 15, 2022>

(5) The period for correction referred to in paragraph (4) shall not be included in the period for adjustment under the latter part of Article 20 (2) of the Act. <Added on Feb. 15, 2022>

(6) Upon filing a request for correction with the Commissioner of the National Tax Service or the Commissioner of the Korea Customs Service under paragraph (4), the Minister of Economy and Finance shall notify the relevant taxpayer of such fact. <Amended on Feb. 15, 2022; Feb. 28, 2025>

Article 46(Scope of borrowings) #

(1) The scope of the amount borrowed by a domestic corporation (including a domestic place of business of a foreign corporation; hereafter in this Section the same shall apply) under the subparagraphs of Article 22 (2) of the Act (hereafter in this Sub-section referred to as "borrowings from a foreign controlling stockholder, etc.") shall be liabilities which generate the interest and discount fees (hereafter in this Section referred to as "interest, etc."); provided, the following amounts borrowed by a domestic branch of a foreign bank under the Banking Act shall be excluded:

1. Funds borrowed in foreign currency upon request of the Government (including the Bank of Korea under the Bank of Korea Act);

2. Funds deposited or borrowed in foreign currency by or from the head office or branch office of the relevant foreign bank in order to use them by any of the following methods:

(a) A method of depositing or lending in foreign currency in or to a nonresident or a foreign exchange agency under the Foreign Exchange Transactions Act;

(b) A method of accepting or trading stocks in foreign currency issued by a nonresident or a foreign exchange agency under the Foreign Exchange Transactions Act.

(2) For the purposes of paragraph (1) 2, where it is unclear that the amount is deposited or borrowed in foreign currency by or from the head office or branch office of a foreign bank, and where it may be distinguished by the source ratio of funds stated on the statement of financial position (based on the annual average balance), etc. for the relevant fiscal year, the amount calculated by applying such source ratio shall be deemed the amount borrowed from the head office or branch office. In such cases, the annual average balance may be calculated daily or monthly.

(3) For the purposes of Article 22 of the Act, where foreign controlling stockholders include both a foreign stockholder under Article 45 (1) 1 and a foreign corporation under subparagraph 2 of that paragraph, borrowings from a foreign controlling stockholder, etc. related to the foreign corporation shall be added to borrowings from a foreign controlling stockholder, etc. related to the foreign stockholder.

(4) For the purposes of Article 22 of the Act, borrowings from a foreign controlling stockholder, etc. shall be converted by applying the basic exchange rate or arbitrated exchange rate under the Foreign Exchange Transactions Act as of the end date of the relevant fiscal year.

(5) Notwithstanding paragraph (4), a domestic corporation engaging in the financial business under the Korean Standard Industrial Classification publicly notified by the Commissioner of the Korea National Statistical Office (hereafter in this Sub-section referred to as "financial business") pursuant to Article 22 of the Statistics Act may select and apply any of the following exchange rates when converting the amount borrowed:

1. The basic exchange rate or arbitrated exchange rate under the Foreign Exchange Transactions Act as of the end date of the fiscal year;

2. The daily basic exchange rate or arbitrated exchange rate under the Foreign Exchange Transactions Act.

(6) The conversion method selected and applied by a domestic corporation pursuant to paragraph (5) shall continuously apply even to the subsequent fiscal years; provided, after five fiscal years including the fiscal year to which the conversion method selected under paragraph (5) is applied, another method may be selected and applied.

Article 47(Method of computing amount of investment of foreign controlling stockholders) #

(1) The amount of investment in a domestic corporation by a foreign controlling stockholder under Article 22 (2) of the Act shall be calculated by multiplying the amount referred to in subparagraph 1 by the ratio referred to in subparagraph 2 as of the end date of the relevant fiscal year of the relevant domestic corporation; provided, in cases of a domestic place of business of a foreign corporation, the amount calculated by subtracting the total amount of liabilities from the total amount of assets on the statement of financial position of the relevant domestic place of business as of the end date of the relevant fiscal year shall be deemed the amount of investment in the domestic place of business of the foreign corporation by the foreign controlling stockholder:

1. The greater of the following amounts:

(a) An amount calculated by subtracting the total amount of liabilities (including reserves and excluding the unpaid corporate tax) from the total amount of assets on the statement of financial position;

(b) An amount calculated according to the following formula (hereafter in this Article referred to as "paid-in capital"):

┌────────────────────────────────────────────┐

│ Capital + (the amount exceeding the par value of stocks issued and gains on capital reduction) ? (margins from the issuance of stocks at below par value and losses on capital reduction) │

└─────────────────────────────────────────┘

2. The ratio of paid-in capital of a foreign controlling stockholder to the total paid-in capital (hereafter in this Article referred to as "paid-in capital ratio"); provided, where the foreign controlling stockholder includes both a foreign stockholder and a foreign corporation that aggregate borrowings pursuant to Article 46 (3), the paid-in capital ratio of the foreign stockholder shall be deemed the paid-in capital ratio of the foreign stockholder and the foreign corporation.

(2) Notwithstanding paragraph (1), where a change occurs in capital due to the merger or demerger, increase or reduction of capital, etc. during the relevant fiscal year, the sum of multiplied numbers, which are respectively calculated for the period from the start date of the relevant fiscal year to the day before the date of the change in capital and the period from the date of such change to the end date of the relevant fiscal year, shall be the multiple referred to in paragraph (1) 1 (a) or the multiplied paid-in capital referred to in item (b) of that subparagraph.

(3) For the purposes of paragraph (1) 2, where a foreign controlling stockholder indirectly owns a domestic corporation’s stocks, the paid-in capital ratio of the foreign controlling stockholder to a domestic corporation shall be calculated by the following methods:

1. Where a foreign controlling stockholder, a domestic corporation, and at least one corporation between them are connected through a single series of stock ownership: The ratio computed by multiplying all equity ratios in every phase; provided, where both a foreign stockholder and a foreign corporation that aggregate borrowings pursuant to Article 46 (3) are included in a single series of stock ownership, Article 2 (3) shall apply mutatis mutandis to the calculation, and in such cases, "indirect ownership ratio" shall be construed as "paid-in capital ratio";

2. Where at least two series of stock ownership exist between a foreign controlling stockholder and a domestic corporation: The ratio computed by adding up all paid-in capital ratios computed pursuant to subparagraph 1 with respect to each series of stock ownership.

Article 48(Method of calculating interest paid excluded from deductible expenses) #

(1) The amount not included in deductible expenses under Article 22 (2) of the Act shall be the amount of interest, etc., plus the amount calculated by multiplying the accumulated excess borrowings calculated according to the following formula by the interest rate on each borrowing:

┌─────────────────────────────────────────────┐

│ Accumulated excess borrowings = Accumulated amount of borrowings from a foreign controlling stockholder, etc. - [accumulated amount of investment │

│ in a domestic corporation by a foreign controlling stockholder under Article 47 × standard multiplier (two times or multipliers by business)] │

└─────────────────────────────────────────────┘

(2) For the purposes of paragraph (1), the accumulated amount of a borrowing subject to the higher interest rate shall be first included in the accumulated excess borrowings; where at least two borrowings are subject to the same interest rate, the accumulated amount of the later borrowing shall be first included in the accumulated excess borrowings; and where both the interest rate and the timing for borrowing are same, the accumulated amount of borrowings shall be proportionally included in the accumulated excess borrowings depending on the ratio of borrowings.

(3) The scope of interest, etc. to be aggregated under paragraph (1) shall be all interests generated from borrowings from a foreign controlling stockholder, etc., the economic substance of which corresponds to interest, such as the amortization of bond discounts and discount charges on accommodation bills, which a domestic corporation must pay to its foreign controlling stockholder; provided, the interest on construction capital funds shall be excluded from the scope of interest, etc. <Amended on Feb. 28, 2025>

Article 59(Scope of non-taxable amount) #

(1) The scope of the non-taxable amount under Article 25 (2) of the Act means the amount not included in the taxable income because interest, etc. paid by a domestic corporation is treated as dividend income pursuant to the tax law of a country where the counter-party to transaction is located, which shall be classified as follows:

1. Where all of the relevant interest, etc. are not included in the taxable income of the counter-party to transaction: The entire amount;

2. Where only the amount that is less than 10 percent of the relevant interest, etc. is included in the taxable income of the counter-party to transaction: The amount not included in the taxable income.

(2) The amount to be included in gains in calculating the amount of income for the fiscal year in which the end date of the reasonable period falls pursuant to Article 25 (2) of the Act shall be calculated by multiplying the amount referred to in subparagraph 1 by the ratio referred to in subparagraph 2:

1. The amount of interest, etc. paid by a domestic corporation to the counter-party to transaction;

2. The ratio of the non-taxable amount under paragraph (1) to the amount of dividend income received by the counter-party to transaction from the domestic corporation.

(3) "Amount equivalent to interest calculated as prescribed by Presidential Decree" in the latter part of Article 25 (2) of the Act means an amount calculated by multiplying the amount referred to in subparagraph 1 by the ratio referred to in subparagraph 2: <Amended on Feb. 15, 2022>

1. The difference in corporate tax arising from non-inclusion of an amount calculated pursuant to paragraph (2) in deductible expenses in the fiscal year for which the interest, etc. paid to the counter-party to transaction are included in the deductible expenses;

2. 22/100,000 per day for the period from the start date of the fiscal year following the fiscal year for which interest, etc. are included in deductible expenses to the end date of the fiscal year for which inclusion in gains is made.

Article 61(Scope of income actually earned) #

(1) The income actually earned under Article 27 (1) of the Act shall be the average annual amount of the aggregate of income actually earned by a relevant foreign corporation for the last three fiscal years, including the relevant fiscal year calculated based on the generally accepted accounting principles (referring to the Korean corporate accounting principles, where such principles are remarkably different from the Korean corporate accounting principles) at the time of preparing financial statements in a country or region where the head office, principal office, or actual management place of the relevant foreign corporation is located (hereafter in this Section referred to as "residence state"). In such cases, the net income before deducting the corporate tax (referring to the net income before deducting the taxes assessed on the corporate income computed pursuant to the tax laws of the residence state of the relevant foreign corporation, and other taxes incidental thereto; hereafter in this Section referred to as "pre-tax profit") actually earned during each fiscal year means the amount adjusted reflecting the following, and income for the fiscal year in which a pre-tax profit is negative shall be deemed zero: <Amended on Feb. 15, 2022>

1. Where the appraised gain or loss (hereafter in this Article referred to as "appraised gain or loss") of stocks or investment certificates is reflected in the pre-tax profit: The appraised gain shall be subtracted, while the appraised loss shall be added; provided, where all or part of the appraised gain or loss of such asset is reflected in the residence state at the time of calculating the taxable income of the relevant foreign corporation, the appraised gain or loss shall not be added nor subtracted;

2. Where stocks or investment securities are sold or dividends or distributions accruing from the assets are received and where any appraised gain or loss in the assets has arisen before the relevant fiscal year: Such appraised gain or loss shall be included.

(2) The last three fiscal years under the former part of paragraph (1) shall include only those during which the types of business referred to in the items of Article 29 (1) 1 of the Act are conducted or those during which acts referred to in the items of subparagraph 2 of that paragraph are primarily conducted, and where the number of fiscal years is less than three, the average annual amount under paragraph (1) shall be calculated only for the relevant fiscal years. <Added on Feb. 15, 2022>

Article 64(Judgment on exception from application of controlled foreign companies’ retained earnings deemed dividends) #

(1) "Where the income actually earned ... as of the end of each fiscal year does not exceed the amount prescribed by Presidential Decree" in subparagraph 1 of Article 28 of the Act means where the amount obtained by converting the income actually earned calculated pursuant to Article 61 by applying the basic exchange rate or arbitrated exchange rate under the Foreign Exchange Transactions Act as of the end of each fiscal year does not exceed 200 million won; provided, where the relevant business term is less than one year, it means where such amount does not exceed an amount computed according to the following formula:

┌───────────────────────────────────────┐

│ (200 million won) × the number of months in the relevant fiscal year │

│ ─────────────────────────────────────────│

│ 12 │

└───────────────────────────────────────────┘

(2) The primary business under the provisions, with the exceptions of the items, of subparagraph 3 of Article 28 of the Act means business that generates more than 50 percent of the total revenue of the relevant controlled foreign company.

(3) "Foreign corporation that meets all the requirements prescribed by Presidential Decree" in the provisions, with the exceptions of the items, of subparagraph 3 of Article 28 of the Act means a foreign corporation meeting the following requirements:

1. The controlled foreign company shall own at least 40 percent of the total number of issued stocks or the total amount of investment;

2. It shall not be subject to Article 27 of the Act.

(4) "The ratio prescribed by Presidential Decree" in the provisions, with the exception of the calculation formula, of subparagraph 3 (b) of Article 28 of the Act means 90 percent. <Amended on Feb. 29, 2024>

(5) "Income prescribed by Presidential Decree" in the calculation formula under subparagraph 3 (b) of Article 28 of the Act means interest income accrued by depositing interest income and dividend income received from a subsidiary in the savings account or installment savings account. <Added on Feb. 29, 2024>

Article 65(Judgment on exceptional application of controlled foreign companies’ retained earnings deemed dividends) #

(1) "Requirements prescribed by Presidential Decree" in the proviso, with the exception of the subparagraphs, of Article 29 (1) of the Act means cases where the amount of sales made to an unrelated person in the same country, etc. under the proviso, with the exception of the subparagraphs, of that paragraph exceeds 50 percent of the total revenue for the relevant fiscal year. In such cases, where Article 2 applies to such special relationship, "domestic corporation" shall be construed as "controlled foreign company."

(2) "Foreign corporation satisfying the requirements prescribed by Presidential Decree" in the provisions, with the exception of the items, of Article 29 (1) 1 of the Act means a corporation meeting the following requirements:

1. It shall be a corporation, for which the aggregate of the revenue generated from the type of business prescribed in the items of Article 29 (1) 1 of the Act or the aggregate of incidental costs added to the purchase prices (hereafter in this Article referred to as "purchase cost") exceeds 50 percent of the total revenue or the total purchase cost of the controlled foreign company; provided, in cases of wholesale trade, it shall be based on the average amount during the last three fiscal years including the relevant fiscal year (where the period falls short of three fiscal years, it shall be limited to the period of the relevant fiscal years);

2. It shall be a corporation, for which the amount of transactions with a related person, out of the aggregate of the revenues or of the purchase costs generated from the type of business prescribed in the items of Article 29 (1) 1 of the Act, exceeds 50 percent of the aggregate of the revenues or of the purchase costs generated from the relevant type of business. In such cases, where Article 2 applies to such special relationship, "domestic corporation" shall be construed as "controlled foreign company."

(3) The primary business under Article 29 (1) 2 of the Act shall be business that generates more than 50 percent of the total revenue of the relevant controlled foreign company.

(4) "Where ... meets the standards prescribed by Presidential Decree" in the provisions, with the exception of the subparagraphs, of Article 29 (2) of the Act means where the aggregate of the income falling under each subparagraph of Article 29 (2) of the Act (hereinafter referred to as "passive income") in the relevant fiscal year exceeds five percent of the total revenue of the relevant controlled foreign company; provided, where the relevant controlled foreign company holds at least 10 percent of the stocks of any of the following foreign corporations, the calculation shall be based on the relevant passive income excluding dividends accrued from such stocks:

1. A foreign corporation performing business other than those referred to in the subparagraphs of Article 29 (1) of the Act;

2. A foreign corporation engaging in wholesale trade falling under Article 29 (1) 1 (a) of the Act, which meets the requirements prescribed in paragraph (1).

Article 66(Computation of distributable retained earnings) #

(1) The distributable retained earnings of a controlled foreign company as of the end of each fiscal year under Article 30 (1) and (2) of the Act shall be computed by deducting the following amounts from the amount obtained by adjusting the matters prescribed by Decree of the Ministry of Economy and Finance in the unappropriated earned surplus (referring to the amount before subtracting interim dividends that have accrued from the appropriation of earned surplus executed in the relevant fiscal year) computed based upon the generally accepted accounting principles at the time of preparing financial statements in the residence state of the relevant controlled foreign company (referring to the Korean corporate accounting principles, where such principles are remarkably different from the Korean corporate accounting principles):

1. Dividends of profits (including interim dividends that have accrued from the appropriation of earned surplus executed in the relevant fiscal year) or distributions of surplus funds, out of the amount of earned surplus appropriated in the relevant fiscal year;

2. Bonuses, retirement benefits, and other outflows from the relevant corporation, out of the amount of earned surplus appropriated in the relevant fiscal year;

3. Obligatory reserves or obligatory appropriation of earned surplus prescribed by the statutes or regulations of the relevant residence state, out of the amount of earned surplus appropriated in the relevant fiscal year;

4. The amount of earned surplus under subparagraph 1 that has not been appropriated, out of the amount already taxed as being deemed distributed to the relevant Korean national pursuant to Article 27 of the Act before the start date of the relevant fiscal year;

5. The amount of earned surplus under subparagraphs 1 and 2 that has not been appropriated, out of the earned surplus (excluding the amount referred to in subparagraph 6) accrued when Article 27 of the Act was not applied;

6. The amount unrealized as of the end of the relevant fiscal year, out of the appraised gain on stocks or investment certificates;

7. The amount under Article 64 (1).

(2) Where a controlled foreign company holding the following amounts appropriates earned surplus under paragraph (1) 1 and 2, such amounts shall be deemed appropriated preferentially in the order of accrual:

1. The distributable retained earnings held before January 1, 1997;

2. The amount referred to in paragraph (1) 4 and 5 held before the start date of the relevant fiscal year.

Article 68(Method for exclusion of actual dividends from taxable gains) #

(1) Where a controlled foreign company has actually paid dividends (including the amount to be deemed dividends or distributions pursuant to Article 16 (1) of the Corporate Tax Act; hereafter in this Article the same shall apply) to a Korean national, the actual dividends shall be deemed paid from retained earnings in the order of accrual of the distributable retained earnings.

(2) Where a foreign corporation in which a Korean national invested (hereafter in this Article referred to as "intermediate foreign corporation") has reinvested in a controlled foreign company and the intermediate foreign corporation actually pays dividends to the Korean national, the amount of such dividends shall be deemed income not included in gross income pursuant to subparagraph 2 of Article 18 of the Corporate Tax Act or shall not be deemed dividend income under Article 17 (1) of the Income Tax Act. In such cases, the amount deemed income not included in gross income or deemed not to be dividend income shall be limited to the amount calculated by the following formula:

┌─────────────────────────────────────────────────┐

│ The aggregate of [the retained earnings actually paid as dividends by a specific foreign corporation to an intermediate foreign corporation │

│× the stockholding ratio of the Korean national to the intermediate foreign corporation as at the time of actual dividend payment)] │

│ - the amount already paid as dividends by the intermediate foreign corporation to the Korean national during the past business year │

│ and thereby deemed income not included in gross income or deemed not to be dividend income │

└────────────────────────────────────────────────┘

(3) Where at least two intermediate foreign corporations interpose between a Korean national and a controlled foreign company, the dividends shall be subject to paragraph (2).

Article 70-2(Special cases concerning imposition of tax on income attributable to foreign transparent entities) #

(1) For the purposes of applying Article 34-2 (1) 2 of the Act, where a foreign corporation, etc. referred to in Article 34-2 (1) 1 of the Act (hereafter in this paragraph referred to as "foreign corporation, etc.") is not liable to pay taxes in accordance with statute of a country in which the foreign corporation, etc. is established or its head office or principal office is located, a stockholder, an investor, or a beneficiary (hereafter in this Article referred to as "investor, etc.") of the relevant foreign corporation, etc. shall be directly liable to pay a tax on the income of the foreign corporation, etc. pursuant to subparagraph 2 of that paragraph.

(2) "Resident or domestic corporation prescribed by Presidential Decree" in Article 34-2 (2) of the Act means a resident defined in Article 1-2 (1) 1 of the Income Tax Act or a domestic corporation defined in subparagraph 1 of Article 2 of the Corporate Tax Act.

(3) The following persons shall submit an application for special cases concerning the imposition of tax on a foreign transparent entity under Article 34-2 (3) of the Act:

1. In cases of managing the assets of a fund managed and operated by the head of a central government agency out of the funds established pursuant to statutes prescribed in Appendix 2 of the National Finance Act: The head of a central government agency which manages and operates the relevant fund (in cases where the management and operation of the fund is entrusted, referring to the entrusted person);

2. In cases of managing the assets owned by the Government or the Bank or Korea under the Korea Investment Corporation Act or by a fund managing entity under the National Finance Act: The Korea Investment Corporation under the Korea Investment Corporation Act whose management and operation of the relevant assets are entrusted;

3. In cases of managing postal savings money under the Postal Savings and Insurance Act or postal insurance reserves under the Act on Special Account for Postal Insurance: The agency in overall charge of postal services under subparagraph 2 of Article 2 of the Act on Special Cases concerning the Management of Postal Services;

4. In cases other than those prescribed in subparagraphs 1 through 3: A resident, etc. who intends to be subject to special cases concerning the imposition of tax on a foreign transparent entity under Article 34-2 (2) of the Act (hereafter in this Article referred to as "special cases concerning the imposition of tax on a foreign transparent entity") among residents or domestic corporations referred to in paragraph (2) (hereafter in this Article referred to as "resident. etc.");

(4) Where a resident, etc. who intends to be subject to the special cases concerning the imposition of tax on a foreign transparent entity submits an application for special cases concerning the imposition of tax on a foreign transparent entity pursuant to Article 34-2 (3) of the Act, he, she, or it shall specify, on an application for special cases concerning the imposition of tax on a foreign transparent entity, the first taxable year (referring to the fiscal year in cases of an investment trust, investment limited partnership, or undisclosed investment association under the "Financial Investment Services and Capital Markets Act"; hereafter in this Article the same shall apply) for which he, she, or it intends to become subject to the special cases concerning the imposition of tax on a foreign transparent entity and submit such application to the head of the tax office having jurisdiction over the place for tax payment.

(5) An application for the special cases concerning the imposition of tax on a foreign transparent entity under Article 34-2 (3) of the Act shall be submitted for each foreign transparent entity that intends to become subject to the special cases concerning the imposition of tax on a foreign transparent entity (referring to the foreign transparent entity under Article 34-2 (1) of the Act; hereafter in this Article the same shall apply).

(6) Notwithstanding paragraph (5), where a multiple number of foreign transparent entities are in continuous investment relationship, such as cases where a foreign transparent entity invests in another foreign transparent entity, when the resident, etc. submits an application for special cases concerning the imposition of tax on a foreign transparent entity directly invested by the resident, etc. all foreign transparent entities in a continuous investment relationship with the relevant foreign transparent entity shall be deemed to be included in the entities subject to the special cases ; provided, the same shall not apply where an application for exclusion from special cases concerning the imposition of tax on a foreign transparent entity prescribed by Decree of the Ministry of Economy and Finance is submitted to the head of the tax office having jurisdiction over the place for tax payment.

(7) "Cases prescribed by Presidential Decree, such as where the foreign transparent entity fails to meet the requirements prescribed in the subparagraphs of paragraph (1)" in Article 34-2 (4) of the Act means where the foreign transparent entity becomes unable to meet requirements prescribed in either of the following subparagraphs:

1. Article 34-2 (1) 1 of the Act;

2. Article 34-2 (1) 2 of the Act.

(8) Where a resident, etc. subject to special cases concerning the imposition of tax on a foreign transparent entity (including a foreign transparent entity for which an application is deemed to have been submitted for special cases concerning the imposition of tax on a foreign transparent entity pursuant to pursuant to paragraph (6)) meets the requirements under paragraph (7), the resident, etc. shall submit an application for the renouncement of special cases on the imposition of tax on a foreign transparent entity to the head of the tax office having jurisdiction over the place for tax payment.

(9) The income immediately attributable to investors, etc. under Article 34-2 (6) of the Act shall be deemed attributable to the residents, etc. in a taxable year that includes the date on which the income is attributable to the foreign transparent entity.

[This Article Added on Feb. 28, 2023]

Article 72(Foreign tax credit) #

(1) The amount of gift tax to be deducted from the amount of gift tax computed under Article 35 (5) of the Act shall be the following amounts of tax (excluding penalty taxes) actually paid by a gift taxpayer to a foreign government (including a local government; hereafter in this Article the same shall apply) under Article 35 (2) of the Act (hereafter in this Article referred to as "tax paid to a foreign country"): <Amended on Feb. 15, 2022>

1. An amount of tax levied, on a donation, under the statutes or regulations of the foreign country based on the value of the donated property (including taxes substantially similar thereto);

2. An amount of surtax on the amount of tax referred to in subparagraph 1.

(2) Tax paid to a foreign country shall be deducted from the amount of gift tax computed by up to the amount computed according to the following formula (hereafter in this Article referred to as "credit limitation"). In such cases, the credit limitation shall not exceed the amount of gift tax computed under the Inheritance Tax and Gift Tax Act:

┌──────────────────────────────────────────┐

│ (Tax base of the donated property on which the gift tax is paid under the statutes or regulations of a foreign country │

│ (referring to the gift tax base under the statutes or │

│ regulations of the relevant foreign country) │

│ ───────────────────────── │

│ Gift tax base under the Inheritance Tax and Gift Tax Act) │

└──────────────────────────────────────────┘

(3) For the purposes of paragraph (1) or (2), the tax base of the donated property shall be converted into Korean currency based on the basic exchange rate or arbitrage exchange rate under the Foreign Exchange Transactions Act as of the date of donation, and the tax paid to a foreign country shall be converted into Korean currency, as prescribed by Decree of the Ministry of Economy and Finance.

(4) A person intending to obtain a foreign tax credit under paragraphs (1) through (3) shall submit an application for foreign tax credit prescribed by Decree of the Ministry of Economy and Finance and evidentiary documents to the head of the tax office having jurisdiction over the place for tax payment when filing a return on the gift tax base.

(5) Notwithstanding paragraph (4), where it is impossible to submit evidentiary documents in filing a return on the gift tax base due to delay in the determination and notice of gift tax by the relevant foreign government, difference in the payment deadline, etc., the relevant person may submit an application for foreign tax credit and evidentiary documents referred to in paragraph (4) to the head of the tax office having jurisdiction over the place for tax payment within three months from the date of receipt of the notice of the determination of gift tax from the foreign government. <Amended on Feb. 15, 2022>

(6) Paragraph (5) shall also apply mutatis mutandis where a tax paid to a foreign country is changed because the relevant foreign government has rectified the amount of gift tax assessed on the donated property. In such cases, refundable taxes, if any, may be appropriated or refunded pursuant to Article 51 of the Framework Act on National Taxes.

Article 74(Exchange of tax and financial information upon request) #

(1) Where the competent authority of the Republic of Korea requests a specific branch or the head of a financial company, etc. (referring to a financial company, etc. defined in subparagraph 1 of Article 2 of the Act on Real Name Financial Transactions and Confidentiality; hereinafter the same shall apply) to provide financial information pursuant to Article 36 (3) and (4) of the Act, such request shall be made in compliance with the standard form referred to in Article 4 (2) of that Act (hereafter in this Section referred to as "written request for the provision of financial transaction information"). In such cases, where the competent authority requests the provision of financial information related to a group that is unable to specify the personal information of a title holder related to the specific financial transaction, it need not enter personal information of the holder in a written request for the provision of financial transaction information.

(2) Where the competent authority of the Republic of Korea provides tax or financial information of a specific taxpayer upon request of the competent authority of the other Contracting State pursuant to Article 36 (1), (3), or (4) of the Act, it shall notify the relevant taxpayer or his or her agent of the fact of providing the tax or financial information, etc., the details of information provided, etc., using a notice of the details of information provision prescribed by Decree of the Ministry of Economy and Finance, within 10 days from the date of such provision (where the notification is deferred under paragraph (3), referring to the date the deferment period ends).

(3) Notwithstanding paragraph (2), where the competent authority of the Republic of Korea receives a written request for deferment of notification on the following grounds from the competent authority of the other Contracting State, it may defer the notification for the period of deferment requested (referring to six months if the period of deferment requested on the ground prescribed in subparagraph 2 or 3 is at least six months):

1. Where such notification is likely to jeopardize a person's life or body;

2. Where it is evident that such notification is likely to obstruct the fair progress of judicial proceedings, such as the destruction of evidence or a threat to a witness;

3. Where it is evident that such notification is likely to obstruct or excessively delay the progress of administrative procedures, such as inquiry and examination.

Article 75(Regular exchange of financial information) #

(1) "Information or data prescribed by Presidential Decree" in the former part, with the exception of the subparagraphs, of Article 36 (6) of the Act means the information or data classified as follows: <Amended on Feb. 28, 2025>

1. Transactions under Article 36 (6) 1 and 3 of the Act: Information or data determined and publicly notified by the Minister of Economy and Finance, such as the name and address of an account holder, tax residence jurisdiction, taxpayer's number (referring to the unique number assigned to identify taxpayers in individual country; hereafter the same shall apply in this Article), account number, account balances, and other similar information or data, which are determined and publicly notified by the Minister of Economy and Finance;

2. Transactions under Article 36 (6) 2 of the Act: Information or data determined and publicly notified by the Minister of Economy and Finance, including the name, address, tax residence jurisdiction, taxpayer identification number, and total transaction amount, as well as other similar information or data of the user of cryptoasset (referring to a digital representation of asset value based on distributed ledger or any other similar technology, which is encrypted to ensure secure authentication and protection of transactions).

(2) “Persons prescribed by Presidential Decree” in the former part, with the exception of the subparagraphs, of Article 36 (6) of the Act means the following persons: <Added on Feb. 29, 2024; Feb. 28, 2025>

1. Banks under the Banking Act;

2. The Industrial Bank of Korea established under the Industrial Bank of Korea Act;

3. The Korea Development Bank established under the Korea Development Bank Act;

4. The Export-Import Bank of Korea established under the Export-Import Bank of Korea Act;

5. Investment traders, investment brokers, collective investment business entities, investment advisory business entities, discretionary investment business entities, trust business entities, and collective investment vehicles under the Financial Investment Services and Capital Markets Act;

6. Mutual savings bank business and the Korea Federation of Mutual Savings Banks under the Mutual Savings Banks Act;

7. Cooperatives, the National Agricultural Cooperative Federation, and NongHyup Bank under the Agricultural Cooperatives Act;

8. Cooperatives under the Fisheries Cooperatives Act, the Korea Federation of Fisheries Cooperatives, and Suhyup Bank;

12. Insurance companies established under the Insurance Business Act;

10. Forestry cooperatives under the Forestry Cooperatives Act and the National Forestry Cooperatives Federation;

11. Community Credit Cooperatives and the Korean Federation of Community Credit Cooperatives under the Community Credit Cooperatives Act;

12. An insurance company established under the Insurance Business Act;

13. Specialized credit finance companies and new technology business investment associations established under the Specialized Credit Finance Business Act;

14. Cryptoasset service provider (refers to a person who provides services related to transactions under paragraph (4), as prescribed and publicly notified by the Minister of Economy and Finance);

15. Other corporations or organizations determined and publicly notified by the Minister of Economy and Finance among corporations or organizations that conduct financial transactions, etc. (referring to transactions under each subparagraph of Article 36 (6) of the Act; hereafter the same shall apply in this Article).

(3) "Assets prescribed by Presidential Decree" in Article 36 (6) 2 of the Act means cryptoasset other than those specified in each of the following subparagraphs (hereafter referred to in this Article as "cryptoasset subject to provision of information, etc."): <Added on Feb. 28, 2025>

1. A digital form of legal tender issued by the central bank of a country;

2. Assets prescribed and publicly notified by the Minister of Economy and Finance as specific electronic money products (referring to legal tender in digital form and issued upon receipt of funds for the purpose of settlement transactions);

3. Assets determined and publicly notified by the Minister of Economy and Finance as assets that are difficult to use as a means of payment or for investment purposes.

(4) "Transactions prescribed by Presidential Decree" in Article 36 (6) 2 of the Act means transactions determined and publicly notified by the Minister of Economy and Finance, such as the exchange or transfer of cryptoasset subject to the provision of information, etc. <Added on Feb. 28, 2025>

(5) "Transactions prescribed by Presidential Decree" in Article 36 (6) 3 of the Act means the following transactions: <Added on Feb. 28, 2025>

1. Transactions prescribed by the Decree of the Ministry of Economy and Finance, which involve financial assets handled by corporations or organizations specified in the following items (referring to money and marketable securities such as deposits, installment savings, mutual savings, savings under installment plans, entrusted funds, investment funds, trust property, stocks, bonds, beneficiary certificates, equity interests, promissory notes, checks, debt instruments, and other assets of a similar nature as prescribed by Decree of the Ministry of Economy and Finance; hereinafter the same shall apply in this subparagraph), involving the acceptance, purchase, repurchase, brokerage, discount, issuance, redemption, reimbursement, trust, registration, or exchange of such assets; the payment of interests, discounts, or dividends thereon; vicariously performing such transactions on behalf of others, or any other transactions involving financial assets:

(a) Investment advisory business entities, discretionary investment business entities, and collective investment vehicles under the Financial Investment Services and Capital Markets Act;

(b) Corporations or organizations under paragraph (2) 15;

2. Transactions under subparagraph 2 (b) of Article 2 of the Act on Reporting and Using Specified Financial Transaction Information;

3. Transactions involving assets under paragraph (3) 1 and 2.

(6) If a competent authority of the Republic of Korea requests the provision of financial information, etc. under the former part, with the exception of the subparagraphs, of Article 36 (6) of the Act (hereinafter referred to as "financial information, etc.") to the head of a financial transaction company, etc. under the former part, with the exception of the subparagraphs, of that paragraph (hereinafter referred to as "financial transaction company, etc."), it shall comply with a written request for the provision of financial transaction information. In such cases, if it is impossible to specify the personal information of the title holder who requests the provision of financial information, etc., the personal information of the title holder may be omitted in the written request for the provision of financial transaction information. <Amended on Feb. 29, 2024; Feb. 28, 2025>

(7) For the purposes of paragraph (6), if a period related to a request and provision is specified in a written request for the provision of financial transaction information, such written request may substitute for a request for provision of information during the relevant period; provided, if any change occurs to the financial transaction companies, etc. subject to such request or the details of such request, a new written request for provision of financial transaction information shall be sent. <Amended on Feb. 29, 2024; Feb. 28, 2025>

(8) Any person who works at a financial transaction company, etc. that provides financial information, etc. under Article 36 (6) of the Act shall prepare the relevant financial information, etc. at the head office of the relevant financial transaction company, etc. in accordance with the statement of provision of information in the from prescribed by Decree of the Ministry of Economy and Finance, and submit it to the Commissioner of the National Tax Service, within 3 months from the date a competent authority of the Republic of Korea requests the provision of financial information, etc. (in cases falling under paragraph (7), referring to the period until the date for regular submission specified on the written request for provision of financial information). <Amended on Feb. 29, 2024; Feb. 28, 2025>

(9) Personal information that the head of a financial transaction company, etc. shall verify when providing financial information, etc. under Article 36 (6) of the Act and personal information that he or she may request from a counter-party to the financial transactions, etc. under paragraph (8) of that Article shall be classified as follows: <Amended on Feb. 29, 2024; Feb. 28, 2025>

1. For an individual: The name, address, taxpayer identification number (referring to the date of birth where no taxpayer identification number exists) in the other Contracting State, and other matters prescribed by the relevant tax treaty to verify the personal information;

2. For a corporation: The corporate name, address of the head office or principal office, de facto controller, and other matters prescribed by the relevant tax treaty to verify the personal information.

(10) Where the competent authority of the Republic of Korea acknowledges that any obvious error exists in the information provided by financial transaction companies, etc. under Article 36 (6) of the Act, or where the competent authority of the other Contracting State requests to correct the error in the information exchanged under that paragraph, based on the relevant tax treaty, it shall request the head of the financial transaction company, etc. to correct such error without delay. <Amended on Feb. 29, 2024; Feb. 28, 2025>

(11) The head of a financial transaction company, etc. upon receipt of a request for correction under paragraph (10) shall submit the corrected information via the information and communications network to the competent authority of the Republic of Korea that requested the correction or shall vindicate the absence of any error, within 30 days from the date of receipt of such request. <Amended on Feb. 29, 2024; Feb. 28, 2025>

(12) Where it is impossible to submit the corrected information or to vindicate the absence of any error by the deadline specified in paragraph (11) on the grounds referred to in any subparagraph of Article 97 (3), the head of the relevant financial transaction company, etc. may file an application for extension of the deadline for submission by up to 30 days, with the competent authority of the Republic of Korea that has requested such correction. <Amended on Feb. 29, 2024; Feb. 28, 2025>

[Title Amended on Feb. 29, 2024]

Article 78(Procedures for entrustment of tax collection) #

(1) Where the head of a tax office having jurisdiction over the place for tax payment or the head of a local government intends to request the Commissioner of the National Tax Service to take measures necessary to collect taxes in the other Contracting State pursuant to Article 40 (1) of the Act, he or she shall submit the following documents; provided, the documents prescribed in subparagraph 2 shall be limited to those collectable in the Republic of Korea:

1. A written request to entrust tax collection between countries prescribed by Decree of the Ministry of Economy and Finance;

2. Documents concerning the nationality, status of residence, and status of domestic and overseas property ownership of the following persons:

(a) A taxpayer;

(b) A person jointly and severally liable for tax payment under Article 25 of the Framework Act on National Taxes or Article 44 of the Framework Act on Local Taxes;

(c) A person secondarily liable for tax payment under Articles 38 through 41 of the Framework Act on National Taxes or Articles 45 through 48 of the Framework Act on Local Taxes and Article 15 of the Local Tax Collection Act.

(2) Upon receipt of a request under paragraph (1), the Commissioner of the National Tax Service shall decide whether to request the competent authority of the other Contracting State to entrust the tax collection, after reviewing the following matters:

1. The nationality, status of residence, and status of property ownership of a taxpayer;

2. The status of the joint and several tax liability and of security for tax payment;

3. A possibility that no tax can be collected;

4. Extinctive prescription of tax claims;

5. Other matters necessary to collect taxes.

(3) Where the Commissioner of the National Tax Service decides to entrust tax collection pursuant to paragraph (2), he or she shall request entrustment of tax collection from the competent authority of the other Contracting State.

(4) Upon receipt of a notification of the results of entrusted tax collection from the other Contracting State, the Commissioner of the National Tax Service shall notify the head of the tax office having jurisdiction over the place for tax payment or the head of the local government of the details of such notification.

Article 79(Procedures for performing entrusted tax collection) #

(1) Where the Minister of Economy and Finance is entrusted with tax collection by the competent authority of the other Contracting State, he or she may require the Commissioner of the National Tax Service to perform the tax collection. In such cases, the Commissioner of the National Tax Service shall report on the results thereof to the Minister of Economy and Finance.

(2) Where the Commissioner of the National Tax Service is entrusted with tax collection by the competent authority of the other Contracting State or is requested to perform the tax collection by the Minister of Economy and Finance pursuant to paragraph (1), he or she shall without delay notify the person subject to tax collection who resides in the Republic of Korea of such fact. In such cases, the Commissioner of the National Tax Service may request such person to submit data to vindicate himself or herself.

(3) The Commissioner of the National Tax Service may request the competent authority of the other Contracting State to provide data verifying the tax liability of the person subject to tax collection, such as a court ruling and the results of an appeal related to the entrusted tax collection.

(4) The Commissioner of the National Tax Service shall examine whether to cooperate in the tax collection entrusted by the competent authority of the other Contracting State, in consideration of the following matters:

1. Data secured pursuant to paragraphs (2) and (3);

2. Matters referred to in the subparagraphs of Article 78 (2);

3. Whether the other Contracting State cooperates in tax collection with the Republic of Korea, according to the principle of reciprocity.

(5) If deemed necessary for an examination under paragraph (4), the Commissioner of the National Tax Service may request consultation from the other Contracting State.

(6) Where the Commissioner of the National Tax Service decides to cooperate in tax collection with the other Contracting State, he or she shall without delay instruct the head of the tax office having jurisdiction over the place for tax payment to collect the relevant tax.

(7) The head of the tax office having jurisdiction over the place for tax payment who is instructed to collect taxes pursuant to paragraph (6) shall collect the relevant taxes as prescribed by the National Tax Collection Act and report the results thereof to the Commissioner of the National Tax Service. In such cases, any expenses incurred in tax collection exceeding the regular collection expenses shall be deducted from the collected tax and be paid to the National Treasury, and the details of such calculation shall be reported to the Commissioner of the National Tax Service.

Article 83(Processing applications for commencing mutual agreement procedures) #

(1) Upon receipt of an application for commencing a mutual agreement procedure pursuant to Article 42 (1) of the Act, the Minister of Economy and Finance or the Commissioner of the National Tax Service shall determine whether to request the competent authority of the other Contracting State to commence the mutual agreement procedure, within three months from the date of receipt of the application, in consideration of the following matters:

1. Whether the application falls under Article 42 (1) 1 through 3 and (2) 1 through 4 of the Act;

2. Whether the tax authority is able to reasonably adjust it by taking necessary measures, without commencing the mutual agreement procedure.

(2) "Cases prescribed by Presidential Decree ... such as where a response to the tax adjustment by the other Contracting State is required" in the proviso of Article 42 (2) 1 of the Act and the proviso, with the exception of the subparagraphs, of Article 46 (3) of the Act means the following cases:

1. Where it is necessary for the tax authority to adjust the tax base and tax amount for each fiscal year, in response to the adjustment of a transfer price between a resident (including a domestic corporation and a domestic place of business; hereafter in this paragraph the same shall apply) and a foreign related party at the arm’s length price by the other Contracting State;

2. Where it is necessary for the other Contracting State to adjust the tax base and tax amount for each fiscal year of a foreign related party, in response to the adjustment of a transfer price between a resident and the foreign related party at the arm's length price by the tax authority.

(3) Where the requirements for applying for a mutual agreement procedure are not met as a result of review under paragraph (1), the Minister of Economy and Finance or the Commissioner of the National Tax Service may request the applicant to supplement and re-file such application.

(4) Even after receiving an application for commencing a mutual agreement procedure, the Minister of Economy and Finance or the Commissioner of the National Tax Service may refrain from requesting the competent authority of the other Contracting State to commence the mutual agreement procedure or may discontinue the mutual agreement procedure that has commenced, if the applicant consents thereto.

(5) Where the Minister of Economy and Finance or the Commissioner of the National Tax Service rejects an application for commencing a mutual agreement procedure, he or she shall notify the applicant and the competent authority of the other Contracting State of such fact.

Article 91(Special cases on application of extension of deadline for payment) #

(1) A person who intends to apply for special application of extension of the payment deadline, etc. or suspension of attachment or sale under Article 49 (1) of the Act shall file an application with the head of the tax office having jurisdiction over the place for tax payment or the head of a local government, along with the following documents:

1. A written application for the special application of extension of payment deadline, etc. prescribed by Decree of the Ministry of Economy and Finance;

2. A copy of the notification of commencing a mutual agreement procedure issued by the Commissioner of the National Tax Service.

(2) For the purposes of Article 49 (2) and (3) of the Act, the head of a tax office having jurisdiction over the place for tax payment or the head of a local government upon receipt of an application under paragraph (1) shall not grant deferment of payment notice, extension of the payment deadline, etc., or suspension of attachment or sale (hereafter in this Article referred to as "deferment of notice, etc.") in any of the following cases. In such cases, where the deferment of notice, etc. has already been allowed, he or she shall cancel it immediately and collect the tax amount and delinquent taxes related to such deferment in lump sum:

1. Where the applicant is in arrears on any national or local tax as of the date of application under paragraph (1);

2. Where the applicant fails to perform his or her duty to submit the following data:

(a) A consolidated report on international transaction information under Article 16 (1) of the Act;

(b) A statement of international transactions under Article 16 (2) 1 of the Act;

3. Where it is highly unlikely to collect taxes.

(3) Where the extension of the payment deadline, etc. or the suspension of attachment or sale is allowed pursuant to Article 49 (5) of the Act, an amount equivalent to the interest to be added to the national tax or local tax shall be calculated as follows:

┌─────────────────────────────────────────────┐

│ Additional amount equivalent to interest = Amount of relevant national tax or local tax whose deadline, etc. for payment │

│ has been extended or after attachment of property or the sale of attached property has been suspended (where an adjustment is made under the mutual agreement procedure, the adjusted amount) │

│× the number of days from either the day after the deadline for tax payment or the commencement date of the mutual agreement procedure, │

│ whichever comes later, until the end date of the mutual agreement procedure (hereinafter referred to as "deferment period") × the interest rate prescribed in │

│ Article 27-4 of the Enforcement Decree of the Framework Act on National Tax (where the deferment period exceeds two years, │

│ the interest rate prescribed in the main clause of Article 43-3 (2) of the same Decree shall be applied to the period after two years have passed) │

└─────────────────────────────────────────────┘

(4) Where the deferment of notice, etc. is applied to the amount of income tax or corporate tax pursuant to Article 49 (6) of the Act and the deferment of notice, etc. is given to a taxpayer pursuant to Article 13 (3), 14 (3), or 105 (4) of the National Tax Collection Act, such fact shall be notified to the head of the local government having jurisdiction over the local tax added to the relevant amount of income tax or corporate tax, by applying mutatis mutandis Article 15 of the Enforcement Decree of that Act.

Article 92(Reporting on foreign financial accounts) #

(1) "Entities ... prescribed by Presidential Decree" in the former part, with the exception of the items, of subparagraph 1 of Article 52 of the Act means a financial company, etc. or a financial company, etc. similar thereto established under foreign finance-related statutes or regulations and a virtual asset service provider defined in subparagraph 2 of Article 2 of the Act on the Protection of Virtual Asset Users or a virtual asset service provider similar thereto established under foreign statutes or regulations related to virtual assets (hereinafter referred to as "virtual asset service provider, etc."). <Amended on Feb. 28, 2025>

(2) For the purposes of Article 53 (1) of the Act, residents and domestic corporations shall be determined as of the end day of the year in which they are required to report.

(3) "Amount prescribed by Presidential Decree" in Article 53 (1) of the Act means 500 million won.

(4) A person obligated to report accounts under Article 53 (1) of the Act (hereinafter referred to as “account reporting obligor”) shall submit a report on overseas financial accounts, as prescribed by Decree of the Ministry of Economy and Finance, to the head of the competent tax office having jurisdiction over the place of tax payment by the reporting deadline. <Amended Feb. 28, 2025>

(5) A person required to report his or her account shall also submit information on persons related to the foreign financial account, in addition to himself or herself, as described in a report on foreign financial accounts under paragraph (4).

(6) Persons related to a foreign financial account under Article 53 (2) of the Act shall each be deemed to have the entire balance of the relevant account.

(7) When determining whether an overseas financial account under Article 53 (2) 2 of the Act is an account in joint names and on the joint holder of the relevant overseas financial account, the statutes and regulations of the country or domicile of the overseas financial company, etc. for which the relevant overseas financial account is opened shall prevail. <Added on Feb. 29, 2024>

Article 93(Methods of computing balance of foreign financial accounts) #

(1) The balance of a foreign financial account of a person required to report his or her account as of the last day of each month shall be computed by aggregating the amounts calculated according to the following classification as to the assets of each foreign financial account held by the person required to report his or her account after converting them respectively at the exchange rate (referring to a daily basic or arbitrated exchange rate under the Foreign Currency Exchange Transactions Act) of the relevant nominal currencies. In such cases, where several persons jointly inherited a foreign financial account in the decedent's name, only the amounts equivalent to the portion of the accounts that each joint heir inherited, out of the balance of the account, shall be converted and aggregated: <Amended on Feb. 28, 2025>

1. Cash: The balance as of the closing time of the last day of each relevant month;

2. Stocks listed on the securities market under the Financial Investment Services and Capital Markets Act or on similar overseas securities markets, and depository receipts issued on the basis of such stocks: Quantity as of the closing time of the last day of each relevant month × the final price on the last day of each relevant month (if the last day of each relevant month is not a trading day, referring to the final price on the immediately preceding trading day);

3. Bonds listed on the securities market under the Financial Investment Services and Capital Markets Act or on similar overseas securities markets: Quantity as of the closing time of the last day of each relevant month × the final price on the last day of each relevant month (the final price on the immediately preceding trading day, if the last day of each relevant month is not a trading day);

4. Collective investment securities under the Financial Investment Services and Capital Markets Act or similar foreign collective investment securities: Quantity as of the closing time of the last day of each relevant month × the base price on the last day of each relevant month (the redemption price as of the last day of each relevant month or the base price on the closest date before the last day of each relevant month, if no base price on the last day of each relevant month exists);

5. Insurance products under the Insurance Business Act or similar foreign insurance products: The amount paid as of the closing time of the last day of each relevant month;

6. Virtual assets defined in subparagraph 1 of Article 2 of the Act on the Protection of Users of Virtual Assets and similar virtual assets that are kept or managed by overseas virtual asset service providers, etc. having their headquarters or principal offices in a foreign country (limited to cases where the place of actual management of business does not exist in the Republic of Korea): The quantity of such assets as of the closing time of the last day of each relevant month × the final price on the last day of each relevant month (if the last day of the relevant month is not a trading day, the final price on the immediately preceding trading day shall apply; if no market exists where such virtual assets can be traded or exchanged to confirm the final price as of the end date of each month, one price chosen by the account reporting obligor among the final prices of domestic or international markets where such virtual assets are traded as of the end of each month shall apply);

7. Assets other than those prescribed in subparagraphs 1 through 6: Quantity as of the closing time of the last day of each relevant month × the market price on the last day of each relevant month (the acquisition price, if it is impracticable to calculate the market price).

(2) Foreign financial accounts under paragraph (1) shall include all accounts held throughout the relevant year, including those with no transaction history and those terminated during the relevant year; provided, the same shall not apply to the following accounts:

1. Financial accounts constituting insurance contracts under the Insurance Business Act and similar overseas insurance products the net premium of which is comprised of only risk premium;

2. Accounts that meet all the following requirements, among the retirement pension accounts opened according to the retirement pension plan under the Act on the Guarantee of Employees' Retirement Benefits or any similar overseas retirement pension plan:

(a) An account shall be eligible for any of the following tax benefits in the relevant country:

(i) Where deposits in the account are deducted or excluded from the account holder's gross income;

(ii) Where deposits in the account are eligible for tax assessment at a reduced tax rate (including cases where deposits in the account are fully or partially deductible from the tax amount calculated for global income);

(iii) Where taxes on investment income from the account are deferred or assessed at a reduced tax rate;

(b) Information relevant to the account shall be reported every year to the competent foreign tax authority;

(c) Withdrawals shall be permitted only upon the occurrence of a specified event, such as the attainment of the specified retirement age, impairment, or death, or withdrawals prior to the occurrence of a specified event shall be subject to detriment;

(d) Deposits per year in the account shall not exceed 50 million won, or the total deposits shall not exceed one billion won. In such cases, where there are several retirement pension accounts according to overseas retirement pension plans, the total deposits shall be determined based on the aggregate of amounts in such accounts.

Article 94(Actual holder of foreign financial accounts) #

(1) The actual holder of a foreign financial account under Article 53 (2) 1 of the Act refers to a person who is a de facto manager of the relevant account, irrespective of the nominal holder of the relevant account, by assuming the economic risks, acquiring the interest gains, dividends, etc., or having the right to dispose of the relevant account in the transactions involving the relevant account.

(2) For the purposes of paragraph (1), where a Korean national directly or indirectly owns 100 percent of the voting stocks of a foreign corporation (including the stocks directly or indirectly owned by persons who has a relationship referred to in subparagraph 20 (a) or (b) of Article 2 of the Framework Act on National Taxes with the Korean national), the Korean national shall count as the actual holder; provided, the same shall not apply where the relevant foreign corporation is located in a country which has concluded and implements a tax treaty with the Republic of Korea.

(3) Notwithstanding paragraph (1) and the main clause of paragraph (2), a person who has invested through a foreign financial account whose nominal holder is any of the following persons shall not be deemed the actual holder:

1. A collective investment vehicle under Article 9 (18) of the Financial Investment Services and Capital Markets Act or a collective investment vehicle similar thereto established in a foreign country (limited to those registered with the Financial Services Commission under Article 279 (1) of that Act);

2. An investment broker under Article 8 (3) of the Financial Investment Services and Capital Markets Act or the Korea Securities Depository under Article 294 of that Act;

3. A trust business entity of a money trust contract under Article 103 of the Enforcement Decree of the Financial Investment Services and Capital Markets Act;

4. A venture investment association defined in subparagraph 11 of Article 2 of the Act on the Venture Investment Promotion Act.

Article 95(Exemption from obligation to report foreign financial accounts) #

(1) "Methods ... prescribed by Presidential Decree" in the latter part of subparagraph 1 (b) of Article 54 of the Act means the method of calculating the period of residence under Article 4 (1), (2), and (4) of the Enforcement Decree of the Income Tax Act. <Amended on Feb. 29, 2024>

(2) "International organizations prescribed by Presidential Decree" in subparagraph 1 (c) of Article 54 of the Act means any of the following international organizations: <Added on Feb. 29, 2024>

1. International organizations defined in the main clause of subparagraph 3 (j) of Article 12 of the Income Tax Act;

2. International organizations under subparagraph 2 (b) of Article 54 of the Act.

(3) "Person prescribed by Presidential Decree" in subparagraph 1 (c) of Article 54 of the Act means a person who meets all of the following requirements: <Added on Feb. 29, 2024>

1. Any of the following persons who shall not be a national of the Republic of Korea:

(a) A person who is not subject to income tax pursuant to subparagraph 3 (j) of Article 12 of the Income Tax Act on benefits received in return for performing the duties at an international organization under paragraph (2) 1;

(b) A person who is not subject to income tax on benefits received in return for performing duties in an international organization under paragraph (2) 2 in accordance with the international laws, such as treaties, conventions, agreements, and memorandums, concluded by the Republic of Korea with other countries;

2. It shall not hold an overseas financial account in an overseas financial company, etc. located in a country other than the country where the exchange of financial information, etc. is conducted on a regular basis under Article 36 (6) of the Act.

(4) "Person related to a foreign financial account who meets the requirements prescribed by Presidential Decree, including where his or her foreign financial account information is verifiable through a report by another joint holder, etc. of the account" in subparagraph 4 of Article 54 of the Act means a person whose information on all foreign financial accounts becomes verifiable by the head of the tax office having jurisdiction over the place for tax payment, as any of the persons related to the foreign financial account under Article 53 (2) of the Act also submits his or her foreign financial account information pursuant to Article 92 (5). <Amended on Feb. 29, 2024>

(5) "Institution prescribed by Presidential Decree" in subparagraph 5 of Article 54 of the Act shall be the following: <Amended on Feb. 29, 2024>

1. An institution related to financial investment business, a collective investment vehicle, a fund rating company, or a bond rating company under the Financial Investment Services and Capital Markets Act;

2. A financial holding company under the Financial Holding Companies Act;

3. A foreign exchange agency and a foreign exchange brokerage company under the Foreign Exchange Transactions Act;

4. A credit information company or a claims collection agency under the Credit Information Use and Protection Act.

Article 98(Obligation to submit data on overseas subsidiaries) #

(1) A statement, etc. of an overseas direct investment under the former part, with the exception of the subparagraphs, of Article 58 (1) of the Act shall be the data classified as follows: <Amended on Feb. 15, 2022; Feb. 28, 2023>

1. A resident or domestic corporation that has made a foreign direct investment under Article 3 (1) 18 (a) of the Foreign Exchange Transactions Act: The business profiles of overseas subsidiaries prescribed by Decree of the Ministry of Economy and Finance;

2. Any of the following residents or domestic corporations that falls under subparagraph 1: The business profiles of overseas subsidiaries and a statement of financial position of overseas subsidiaries prescribed by Decree of the Ministry of Economy and Finance:

(a) A resident or domestic corporation that owns at least 10 percent of the total number of issued stocks or the total amount of investment of a corporation that has attracted overseas direct investment under Article 3 (1) 18 (a) of the Foreign Exchange Transactions Act (hereafter in this Article referred to as "invested corporation") and whose amount of investment exceeds 100 million won;

(b) A resident or domestic corporation that directly or indirectly owns at least 10 percent of the total number of issued stocks or the total amount of investment of an invested corporation and has a special relationship defined in Article 2 (1) 3 of the Act with the invested corporation;

3. A resident or domestic corporation falling under subparagraph 2 (b) for which the amount of loss on each transaction falling under Article 58 (1) 3 or 4 of the Act (hereafter in this Article referred to as "amount of loss on a transaction") meets the following requirements: The business profiles of overseas subsidiaries, a statement of financial position, and a statement of losses on transactions prescribed by Decree of the Ministry of Economy and Finance:

(a) Residents: The amount of loss on a transaction shall be at least one billion won during a single taxable period, or the cumulative amount of loss from the taxable period during which the first loss occurred to the taxable period falling on the fifth anniversary shall be at least two billion won;

(b) Domestic corporations: The amount of loss on a transaction shall be at least five billion won for a single fiscal year, or the cumulative amount of loss from the fiscal year in which the first loss occurred to the fiscal year falling on the fifth anniversary shall be at least 10 billion won;

4. A resident or domestic corporation that has made a foreign direct investment under Article 3 (1) 18 (b) of the Foreign Exchange Transactions Act: A list of overseas business offices prescribed by Decree of the Ministry of Economy and Finance;

5. Deleted. <Feb. 15, 2022>

(2) Pursuant to Article 58 (2) of the Act, a resident or a domestic corporation that has acquired and owns or disposed of real estate in a foreign country or any related right (hereinafter referred to as "overseas real estate, etc.") in the relevant taxable year, in capital under the Foreign Exchange Transactions Act shall submit a statement of acquisition, ownership, investment and management (leasing), and disposal of overseas real estate, etc. prescribed by Decree of the Ministry of Economy and Finance to the head of a tax office having jurisdiction over the place for tax payment.. <Added on Feb. 15, 2022>

(3) For the purposes of paragraph (1) 3, the following losses on transactions incurred to a resident or domestic corporation shall be calculated in accordance with the generally accepted accounting principles, and the following losses on transactions incurred to an invested corporation shall be calculated in accordance with the generally accepted accounting principles at the time of preparing financial statements in a residence state of the invested corporation (referring to the Korean corporate accounting principles, where such principles are remarkably different from the Korean corporate accounting principles): <Amended on Feb. 15, 2022>

1. Losses arising from purchase, disposal, donation, appraisal, value reduction, etc. of an asset; provided, the following losses shall be excluded herefrom:

(a) Losses arising from purchase and sale of inventory assets for business purposes;

(b) Depreciation expenses of tangible and intangible assets used for business purposes;

(c) Losses arising from disposal, appraisal, or value reduction of securities traded in a security market (including foreign securities markets);

(d) Losses arising from valuation following fluctuations of exchange rates of monetary assets in a foreign currency (including losses on valuation following exchange rate fluctuations);

2. Losses arising from recognition, appraisal, repayment, etc. of liabilities (including provisions, but excluding corporate tax payable); provided, losses arising from valuation following fluctuations of exchange rates of monetary liabilities in a foreign currency (including losses on valuation following exchange rate fluctuations) shall be excluded herefrom;

3. Losses arising from capital transactions, such as capital increase, capital reduction, merger, and demerger.

(4) A resident or a domestic corporation (hereafter referred to as "truster" in this Article and subparagraph 3 of Appendix 3) that establishes an overseas trust (including the cases where property is transferred to an overseas trust) under the provisions, with the exception of the subparagraphs, of Article 58 (3) of the Act (hereinafter referred to as "overseas trust") shall submit a detailed statement of overseas trust prescribed by Decree of the Ministry of Economy and Finance to the head of the competent tax office having jurisdiction over the place for tax payment under Article 58 (3) of the Act. <Added on Feb. 29, 2024>

(5) "Overseas trust that meets the requirements prescribed by Presidential Decree, such as the trustor's substantial control over the overseas trust property," in Article 58 (3) 1 of the Act means an overseas trust in which the trustor has substantial governance and control over the overseas trust property, such as holding the right to revert to the residual property after the overseas trust is terminated. <Added on Feb. 29, 2024>

(6) The market value of overseas trust property under the main clause, with the exception of the subparagraphs, of Article 58 (8) of the Act, shall be calculated by the following amounts: <Added on Feb. 29, 2024; Feb. 28, 2025>

1. Cash: The balance as at the end of the base date of market price (referring to the termination date under each item of Article 58 (8) 1 of the Act and the establishment date under subparagraph 2 of that paragraph; hereafter the same shall apply in this paragraph);

2. Stocks listed on the securities market under the Financial Investment Services and Capital Markets Act or on similar overseas securities markets, and depository receipts issued on the basis of such stocks: The final price as of the base date of market price (where the base date of market price is not a trading day, it shall be the final price as of the immediately preceding trading day);

3. Bonds listed on the securities market under the Financial Investment Services and Capital Markets Act or on similar overseas securities markets: The final price as of the base date of market price (if the base date of market price is not a trading day, it shall be the final price as of the immediately preceding trading day);

4. Collective investment securities under the Financial Investment Services and Capital Markets Act and overseas collective investment securities similar thereto: The base price as of the base date of market prices (if no base price exists as of the base date of market prices, the redemption price as of the base date of market prices or the base price as of the nearest day before such date shall apply);

5. Insurance products under the Insurance Business Act or similar foreign insurance products: The amount paid as of the closing time of the base date of market price;

6. Virtual assets defined in subparagraph 1 of Article 2 of the Act on the Protection of Users of Virtual Assets and other similar assets: The final price as of the valuation date shall apply (if the valuation date is not a trading day, the final price on the immediately preceding trading day shall apply; yet, if no functioning market exists for trading or exchange of the relevant virtual asset to confirm the final price on the valuation date, one final price selected by the trustee from among the final prices on the valuation date in domestic or overseas markets where the relevant asset is traded shall apply;

7. Overseas trust property other than the overseas trust property prescribed in subparagraphs 1 through 6: The value deemed normally established when transactions are freely conducted between many and unspecified persons.

(7) Where it is impracticable to calculate the market price under the proviso, with the exception of the subparagraphs, of Article 58 (8) of the Act, the value of the overseas trust property shall be the acquisition value. <Added on Feb. 29, 2024>

Article 100(Definitions) #

(1) "A collection of entities prescribed by Presidential Decree" in Article 61 (1) 2 (a) of the Act means a group of enterprises falling under any of the following subparagraphs: <Amended on Feb, 28, 2025>

1. An enterprise whose assets, liabilities, profits, expenses, and cash flows are included in the consolidated financial statements of the UPE;

2. An enterprise owned or controlled by the UPE and whose assets, liabilities, profits, expenses, and cash flows are not included by item in the consolidated financial statements of the UPE because the enterprise falls under the grounds prescribed by Decree of the Ministry of Economy and Finance, such as the small size of the enterprise (hereafter in this Chapter referred to as "excluded entity").

(2) "Government enterprise prescribed by Presidential Decree" in the former part of Article 61 (1) 11 of the Act means a government enterprise that is directly or indirectly engaged in the management of an investment fund, which is established by the government under Article 102 (1) 1 (a) for purposes of maintaining balance in the international balance of payments, preparing for fiscal demands, or other similar objectives. <Added on Feb. 29, 2024>

(3) "That any ownership interest holder is required to consolidate in accordance with a financial accounting standard, etc., as prescribed by Presidential Decree" in the former part of subparagraph 11 of Article 61 (1) of the Act means any of the following cases: <Amended on Feb. 29, 2024>

1. Where a person holding an equity interest in another entity is required to consolidate the assets, liabilities, revenues, expenses and cash flows of that enterprise on an item-by-item basis in accordance with the accounting standards pursuant to Article 105 (2) 1 (hereinafter referred to as "recognized accounting standards" in this chapter);

2. Where a person holding an equity interest in another entity is not obligated to prepare a consolidated financial statement but, assuming it does, is required to consolidate the assets, liabilities, revenues, expenses, and cash flows of that entity by item.

(4) "Financial statements that are prescribed by Presidential Decree, such as those where an entity and the entities in which it has a controlling interest, if any, are consolidated" in Article 61 (1) 12 of the Act means financial statements specified in any of the following subparagraphs: <Amended on Feb. 29, 2024>

1. Financial statements prepared by a parent entity in accordance with the recognized accounting standards that consolidate the assets, liabilities, revenues, expenses, and cash flows of that entity and other entities in which it has a controlling interest and present them as a single economic entity;

2. Financial statements prepared by the UPE (limited to entities specified in Article 61 (1) 6 (b) of the Act) in accordance with the recognized accounting standards;

3. Financial statements prepared by the UPE in accordance with the accounting standards other than the recognized accounting standards, which have undergone adjustments prescribed by Decree of the Ministry of Economy and Finance to prevent significant distortions (hereinafter referred to as "adjustment for prevention of significant distortions");

4. Financial statements of the UPE that is not obligated to prepare the financial statements specified in subparagraphs 1 through 3, assuming that it prepares the financial statements that fall under any of the following items; in such cases, the fiscal year for the relevant financial statements shall be 1 calendar year:

(a) Financial statements prepared in accordance with the recognized accounting standards;

(b) Financial statements prepared in accordance with the accounting standards provided in Article 105 (2) 2 (hereinafter referred to in this chapter as "publicly accredited accounting standards") that have been adjusted to prevent significant distortions.

(5) "A constituent entity prescribed by Presidential Decree, such as investment fund and real estate investment vehicle" in Article 61 (1) 18 of the Act means any of the following constituent entities: <Added on Feb. 29, 2024; Feb. 28, 2025>

1. Investment entity: An entity falling under any of the following items:

(a) Investment funds under Article 102 (1) 5 (b) or real estate investment vehicles under subparagraph 6 (b) of that paragraph;

(b) An entity whose ratio of equity interest (calculated as prescribed by Decree of the Ministry of Economy and Finance; hereafter in this subparagraph, referred to as "equity holdings value ratio") that are held directly by an entity under item (a) or indirectly through at least one other entity under item (a) is at least 95/100, and which conducts business activities only for holding assets or investing funds on the entity's account under item (a);

(c) An entity whose equity holdings value ratio is not less than 85/100 and whose income is wholly or almost entirely the dividend income under Article 104 (1) 2 or equity gains or losses under subparagraph 4 of that paragraph.

2. Insurance investment entity: An entity that meets all of the following requirements:

(a) It shall be any of the following enterprises:

(i) The collective investment vehicle under Article 9 (18) of the Financial Investment Services and Capital Markets Act or an investment vehicle similar thereto, which meets all of the requirements under Article 102 (1) 5 (b) ii) through vi);

(ii) An enterprise whose investment target is mainly real estate (including securities linked to real estate), which meets the requirements specified in Article 102 (1) 6 (b) (ii);

(b) It shall be wholly owned by an entity established in connection with liabilities under an insurance or annuity insurance contract and regulated as an insurance company in the country of domicile.

[This Article Added on Dec. 29, 2023]

[Previous Article 100 moved to Article 144 <Dec. 29, 2023>]

Article 101(How to apply standards for consolidated sales in cases of merger and demerger) #

(1) In calculating sales on the consolidated financial statements under the former part of Article 62 (1) of the Act, where various types of sales generated from ordinary business activities of a MNE Group are indicated separately in the consolidated income statements, the relevant sales shall be aggregated. <Added on Feb. 28, 2025>

(2) “Adjustments prescribed by Presidential Decree, such as addition of profits accrued from ordinary business activities, which are separately indicated in the consolidated financial statements” in the former part of Article 62 (1) of the Act means the following matters to be adjusted: <Added on Feb. 28, 2025>

1. Addition of extraordinary income and non-recurring income that are separately stated from sales in the consolidated income statement;

2. Addition of net profits from investments that are separately stated from sales in the consolidated statement of profit and loss (including unrealized net profits; if profits and losses from investment are presented on a gross basis, the total amount of losses shall be deducted from the total amount of profits from investment only in cases where the total amount of profits exceeds the total amount of losses);

3. If a constituent entity is a financial enterprise, items similar to the sales amount according to the accounting standards of the UPE shall be adjusted to the total amount or net amount according to the method of indicating by item in the accounting standards.

(3) "Any reason prescribed by Presidential Decree, including a merger or demerger," in Article 62 (2) of the Act means any of the following reasons: <Amended on Feb. 28, 2025>

1. Merger: Where two or more groups combine to form a single group, or where an entity that is not a constituent entity of a group joins another entity or group to form a single group;

2. Demerger: Where a group is split into two or more groups and the constituent entities of each group are no longer consolidated to the same UPE;

3. New establishment: Where a group is newly incorporated (excluding cases falling under subparagraph 1 or 2);

4. Mismatch between the fiscal year (referring to the accounting period for which the UPE of a MNE Group prepares consolidated financial statements; the same shall apply in this Chapter) and the accounting period: Where the fiscal year does not coincide with the accounting period of an enterprise falling under any of the following items:

(a) Entity excluded from consolidated financial statements;

(b) A joint enterprise group under Article 80 (2) 1 of the Act;

(4) When applying Article 62 (1) of the Act in accordance with paragraph (2) of that Article, if any of the reasons specified in each subparagraph of paragraph (3) of this Article occurs, the following shall apply: <Amended on Feb. 28, 2025>

1. Merger: The following shall apply:

(a) Where two or more groups have merged during the 4 fiscal years immediately preceding a given fiscal year: If, during any of the 4 preceding fiscal years, the sum of the consolidated revenues (referring to the consolidated revenue under Article 62 (1) of the Act; the same shall apply in this Article) of the respective groups prior to the merger is at least EUR 750 million, the consolidated revenue of the merged or surviving group (hereinafter referred to in this subparagraph as the "merged group") for the relevant fiscal year shall be deemed to be at least EUR 750 million, and Article 62 (1) of the Act shall apply accordingly.

(b) Where an enterprise that is not a constituent entity of the group (hereinafter referred to in this paragraph as the "acquired enterprise") is merged with another enterprise or group (hereinafter referred to in this paragraph as the "acquiring enterprise") during any of the 4 fiscal years immediately preceding a given fiscal year: If, during any of the 4 preceding fiscal years, the sum of the sales or consolidated revenue of the acquired enterprise and the acquiring enterprise before the merger amounts to at least EUR 750 million, the consolidated revenue of the merged group for the corresponding fiscal year shall be deemed to be at least EUR 750 million, and Article 62 (1) of the Act shall apply accordingly;

(c) If the fiscal year of the pre-merger group, acquired enterprise, or acquiring enterprise does not coincide with the fiscal year of the merged group when applying items (a) and (b): The sum of the sales or consolidated sales of the pre-merger group, acquired entity, or acquiring entity for the 4 fiscal years immediately preceding the fiscal year in which the merger date falls shall be deemed the consolidated sales of the merged group for the fiscal year in which the end date of each such fiscal year falls;

2. Demerger: If a MNE Group that would have been subject to Chapter 5 of the Act and this Chapter in the fiscal year in which the demerger took place but for the demerger, is divided into two or more groups, Article 62 (1) of the Act shall apply to the group formed by the demerger (hereinafter referred to as the "demerged group" in this subparagraph) in the fiscal year in which the date of the demerger falls (hereinafter referred to as the "fiscal year of demerger" in this subparagraph) of which consolidated revenue is EUR 750 million or more, and with respect to the 3 fiscal years following the fiscal year of demerger, Article 62 (1) of the Act shall apply if the consolidated revenue of the demerged group is EUR 750 million or more in at least two of the 3 fiscal years immediately following the fiscal year of demerger.

3. New establishment: If a group is newly established, Article 62 (1) of the Act shall apply to cases where the consolidated revenue of the group for the fiscal year in which the date of establishment falls (hereinafter referred to in this paragraph as the "fiscal year of establishment") and the immediately following fiscal year is EUR 750 million or more, or where the consolidated revenue for at least two fiscal years among the fiscal year of establishment and 2 immediately following fiscal years is EUR 750 million or more;

4. Discrepancy between the fiscal year and the accounting period: The accounting period of an entity (referring to an entity falling under any item of paragraph (3) 4) that ends during the fiscal year of a MNE Group shall be deemed the relevant fiscal year, and Article 62 (1) of the Act shall apply accordingly.

(5) The exchange rate for converting the amounts necessary to apply Chapter 5 of the Act, including consolidated sales under Article 62 (2) of the Act, into euro shall be the average of the daily exchange rates publicly notified by the European Central Bank in December of the business year immediately preceding the relevant business year; provided, if the European Central Bank fails to publicly notify the rate, the average of the daily exchange rates publicly notified by the Central Bank of the issuing country of the currency to be converted into euro in December of the fiscal year immediately preceding the relevant fiscal year shall be used. <Amended on Feb. 28, 2025>

[This Article Added on Dec. 29, 2023]

[Previous Article 101 moved to Article 145 <Dec. 29, 2023>]

Article 102(Scope of excluded entities) #

(1) Excluded entities referred to in Article 62 (3) of the Act (hereinafter referred to in this chapter as "excluded entities") shall be the organizations, etc. specified in the following subparagraphs: <Amended on Feb. 29, 2024; Feb. 28, 2025>

1. Government enterprise: An enterprise that meets all of the following requirements;

(a) It shall belong to the Government (including the State (including a district which it has financial autonomy; such district shall be deemed a separate State; hereafter the same shall apply in this chapter), local governments, and political subdivisions of governments or local government organs equivalent thereto; hereinafter the same shall apply in this chapter), or it shall be wholly owned by the Government;

(b) It shall have a primary purpose of performing governmental functions or managing and investing governmental assets and shall not engage in a for-profit business;

(c) It shall be accountable to the Government for the performance of its activities and report annual performance to the Government;

(d) If the net profit is distributed, the whole shall be distributed to the Government, and upon dissolution, the remaining property shall revert to the Government;

2. International organization: An intergovernmental organization that meets all of the following requirements (including supranational organizations; the same shall apply in this chapter) or an agency or organization wholly owned by such an organization;

(a) It shall be mainly composed of government organs;

(b) The headquarters agreement (referring to an agreement concluded between an intergovernmental organization and the State where its headquarters is located) or a similar agreement is concluded and effective;

3. Non-profit organization: An organization that satisfies all of the following requirements; provided, an organization that conducts business not directly related to the purpose of establishment shall be excluded:

(a) It shall be an organization that falls under any of the following categories:

(i) Organizations established and operated for religion, charity, science, art, culture, sports, education, and other similar purposes;

(ii) Group of professional occupations, business federations, chambers of commerce, labor organizations, agricultural or horticultural organizations, civic groups, and other similar organizations established and operated to promote social welfare;

(b) Almost all income of an organization shall not be taxed in the country where the relevant organization is established and operated;

(c) No shareholders or members have exclusive ownership or rights to use or benefit from the income or assets of the organization;

(d) The income or assets of an organization shall not be distributed or provided to a private person or an enterprise not engaged in philanthropy, except in any of the following cases;

(i) Where the income or assets are generated from charitable activities performed by the relevant organization;

(ii) Where the organization pays a reasonable price for the services provided to, or property or capital used by, the relevant organization;

(iii) Where the relevant organization pays a price equivalent to the fair value of the purchased property;

(e) When the relevant organization closes its business, is dissolved or liquidated, its residual property shall revert to another organization of the State in which the organization was established and operated (limited to an organization meeting the requirements specified in items (a) through (d)), the Government, or a government enterprise;

4. Pension fund: It means any of the following entities:

(a) An entity established and operated to manage and provide benefits to individuals (referring to retirement benefits (including benefits paid incidentally thereto) and benefits paid in contingency situations such as death or injury; hereinafter the same shall apply in this subparagraph), which satisfies any of the following requirements:

(i) It shall be regulated in the State where the relevant entity is established and operated in compliance with the purpose of establishment and operation of the relevant entity;

(ii) It shall be financed by collective assets, etc. held through a trust so that the relevant benefits can be stably performed, and shall have appropriate means of security or institutional guarantees in case of impossibility of performance thereof;

(b) An entity established and operated for any of the following purposes:

(i) Funds shall be invested for an entity referred to in item (a);

(ii) An entity that belongs to the same group as an entity referred to in item (a) and shall perform incidental activities for the payment of benefits performed by the entity referred to in item (a);

5. Investment fund which is the UPE: An entity that meets all of the following requirements:

(a) It shall be the UPE;

(b) An entity that is a collective investment vehicle under Article 9 (18) of the Financial Investment Services and Capital Markets Act or an investment vehicle similar thereto, which meets all of the following requirements:

(i) There shall be multiple investors (provided, this shall not apply where all the investors consist solely of specially related parties prescribed by Decree of the Ministry of Economy and Finance (hereinafter referred to in this Chapter as “specially related parties”));

(ii) It shall be designed to pool assets from investors and carry out investments in accordance with a predetermined investment policy;

(iii) It shall be designed to reduce the costs of survey, analysis, and transactions of investors or to diversify risks, and mainly to generate returns on investment or to protect specific or general cases and outcomes;

(iv) Investors shall hold the right to receive profits from fund assets based on their respective contributions;

(v) The relevant entity or the manager of the entity shall be governed by the regulatory systems of the State (including regulations on the prevention of money laundering and the protection of investors);

(vi) An investment fund management expert shall manage the funds on behalf of investors;

6. Real estate investment vehicle which is the UPE: It means an entity which satisfies all of the following requirements:

(a) It shall be the UPE;

(b) It shall be an entity whose investment target primarily consists of real estate (including securities whose value is linked to real estate) and that satisfies all of the following requirements:

(i) The ownership of the relevant investment vehicle shall be dispersed;

(ii) Either the entity or its equity holders shall be subject to taxation (including cases where taxation is deferred for up to 1 year);

7. Other excluded entities: An entity (hereafter referred to as "controlled entity" in this subparagraph) that is directly owned, or indirectly owned through another excluded entity, by one or more excluded entities specified in subparagraphs 1 through 6 (excluding entities referred to in subparagraph 4 (b); hereafter referred to as "controlling entity" in this subparagraph), which falls under any of the following subparagraphs:

(a) An entity of which the ratio of equity holdings of a controlled entity owned by a controlling entity (calculated as prescribed by Decree of the Ministry of Economy and Finance; hereafter in this subparagraph, referred to as "equity holdings value ratio") is at least 95/100, which is specified as follows (including fixed place of business of the relevant entity):

(i) An entity that conducts business activities only for holding assets or investing funds for a controlling entity (including cases where it does not actively conduct business activities other than the relevant business activities). In such cases, holding or investing assets with funds borrowed from a person other than an entity belonging to the same group shall be also deemed for the benefit of the controlling entity.

(ii) An enterprise that performs only ancillary activities related to the activities conducted by the controlling entity. In such cases, the activities performed by an enterprise that meets the requirements prescribed by Decree of the Ministry of Economy and Finance and whose entire value of equity interest under Article 62 (3) 7 of the Act is directly or indirectly owned by one or more nonprofit organizations referred to in subparagraph 3 shall be deemed ancillary activities.

(iii) An entity that performs both business activities specified in item (i) and incidental activities specified in item (ii);

(b) An entity whose equity holdings value ratio is not less than 85/100 and whose income is wholly or almost entirely dividend income under Article 104 (1) 2 or equity gains or losses under subparagraph 4 of the aforesaid paragraph;

(2) Where a filing constituent entity decides whether to include an excluded entity as a constituent entity pursuant to Article 62 (4) of the Act, the following criteria (hereafter referred to as "five-year option" in this chapter) shall apply:

1. The selection of a filing constituting company is applied to the first fiscal year subject to the selection and the following four fiscal years;

2. A filing constituting company shall not cancel its selection for the fiscal year subject to application under subparagraph 1;

3. If a filing constituting company does not express its intention to cancel the relevant selection for the fiscal year following the fiscal year subject to the last application under subparagraph 1, the relevant selection shall be reapplied on a yearly basis to the fiscal year subject to the last application under subparagraph 1;

4. If a filing constituting entity cancels its selection for the fiscal year following the fiscal year subject to the application under subparagraph 1, it shall not make the same selection again for the first fiscal year subject to the relevant cancellation (hereafter in this chapter referred to as "fiscal year subject to cancellation") and the following four fiscal years.

[This Article Added on Dec. 29, 2023]

[Previous Article 102 moved to Article 146 <Dec. 29, 2023>]

Article 103(Location of entities) #

(1) “An enterprise prescribed by Presidential Decree” referred to in the main provisions, with the exception of the subparagraphs, of Article 64 (1) 1 of the Act means an enterprise that is classified as a pass-through entity in the country where it is established and operated (which refers to an entity whose income, expenditure, and profits and losses are attributed, for tax purposes, to the holders of equity interests in proportion to their shares; hereafter referred as “pass-through entity” to in this Chapter): <Amended on Feb. 28, 2025>

(2) The country of residence of a permanent establishment under Article 64 (3) of the Act shall be the State classified as follows; provided, a business establishment other than those specified in subparagraphs 1 through 3, which is not subject to taxation on income attributable to the relevant business establishment (hereafter in this chapter referred to as "type 4 permanent establishment"), shall be deemed to have no country of residence: <Amended on Feb. 28, 2025>

1. In the case of a permanent establishment (hereinafter referred to as “type I permanent establishment” in this Chapter) that is deemed to exist under an applicable and effective tax treaty (including any tax treaty to which the Republic of Korea is not a contracting party; hereinafter the same shall apply in this Chapter), and that is subject to taxation on income attributable to such permanent establishment by calculating methods for business profits in accordance with the Model Tax Convention on Income and on Capital adopted by the OECD (hereafter referred to as the “Model Tax Convention” in this Chapter ) or a similar method: The country that imposes tax on the permanent establishment under the relevant tax treaty;

2. In the case of a business establishment without any applicable and effective tax treaty, which is subject to taxation on the net income attributable to the relevant business establishment in a manner similar to the method of taxation for residents under the tax laws (hereafter in this chapter referred to as "type 2 permanent establishment"): A country which imposes a tax on the basis of net income based on the place of business;

3. In the case of a business establishment located in a country without any corporate tax system on the relevant establishment, and according to the Model Tax Convention, the country where the business establishment is actually located is recognized to have the right to taxation on the income attributable to the relevant business establishment (hereafter in this chapter referred to as "type 3 permanent establishment"): The State in which the relevant business establishment is actually located.

(3) If an entity has at least two countries of residence pursuant to Article 64 (4) of the Act, the country of residence shall be determined by the following methods: <Amended on Feb. 28, 2025>

1. If any applicable and effective tax treaty exists: it shall be determined in accordance with the relevant tax treaty;

2. If any applicable and valid tax treaty exists but the country of residence cannot be determined accordingly, or if no applicable and valid tax treaties exist: it shall be determined in the following order:

(a) Where any country has paid a covered tax under the former part of Article 67 (1) of the Act (hereafter referred to as "covered tax" in this Chapter, and when calculating the amount of covered tax in this subparagraph, the tax amount accrued from the application of the taxation system under Article 111 (1) 5 shall be excluded herefrom) which is larger amount in the relevant fiscal year, it shall be determined as such country;

(b) If the amount of covered taxes paid by each State is identical or no taxes are paid in the relevant fiscal year, the State with bigger amount of substance-based income exclusion calculated by each State pursuant to Article 118 is decided on;

(c) If the amount of covered taxes paid by each State is identical or nil in the relevant fiscal year, and if the amount of substance-based income exclusion calculated by country pursuant to Article 118 is also identical or nil, it shall be decided that there is no country of residence, but if the relevant entity is the UPE of a MNE Group, it shall be decided that the relevant entity is located in a country where the relevant entity is established and operated.

(4) If the country of residence of a parent entity determined pursuant to paragraph (3) fails to enforce the Qualified IIR provided in Article 72 (4) 1 of the Act, the other country of residence excluded from the decision under paragraph (3) may apply the Qualified IIR to the relevant parent entity; provided, this shall not apply where the applicable and effective tax treaties restrict the application thereof.

(5) Where an entity changes the country of residence during a fiscal year, the country of residence at the time of the commencement of the relevant fiscal year shall be deemed the country of residence for the relevant fiscal years.

[This Article Added on Dec. 29, 2023]

[Previous Article 103 moved to Article 147 <Dec. 29, 2023>]

Article 104(Adjustment of net income or loss in accounting for calculation of GloBE income and loss) #

(1) "The adjustments prescribed by Presidential Decree, such as addition of net tax expenses, deduction of dividend income, and addition of policy disallowed expenses including bribes" in Article 66 (1) of the Act means the following adjustments: <Feb. 28, 2025>

1. Addition of net tax expenses (referring to the amount of covered tax, current corporate tax, deferred tax, etc. appropriated as expenses in accounting of a constituent entity);

2. Deduction of dividend income (referring to dividends or other distributions of profits from the ownership shares held by a constituent entity);

3. Addition of policy disallowed expenses (referring to illegal expenditures such as bribes and fines and administrative fines of at least EUR 50,000)

4. Adjustment of equity gains or losses (referring to profit or loss incurred in connection with the disposal of ownership shares held by a constituent entity or the assessment of fair value, etc.);

5. Adjustment of revaluation gains or losses (referring to gains or losses accruing from the difference between the value of the tangible assets of a constituent entity revaluated at fair value and the book value);

6. Adjustment of asymmetric gains or losses on foreign exchange (referring to gains or losses on foreign exchange incurred where the currencies used in preparing the financial statements of a constituent entity are different from the currencies used in calculating the amount of income for tax purposes);

7. Adjustment of pension profits and losses (referring to profits and losses generated in connection with the retirement pension plans of a constituent entity);

8. Adjustment of stock-based compensation expenses (referring to expenses incurred in connection with stocks or money equivalent to the value of stocks that a constituent entity pays to its executive officers and employees, etc. as bonuses);

9. Adjustment of expenses for a group internal financial agreement (referring to expenses incurred in connection with an agreement to directly or indirectly provide credit or invest between constituent entities);

10. Adjustment of profits from disposal of total assets (where the sum of profits from disposal of real estate owned by a constituent entity in the relevant country exceeds the sum of losses, referring to such amount);

11. Adjustment of profits exempted from debts (referring to the profits generated when a constituent entity is exempted from debts);

12. Adjustment in accordance with qualified refundable tax credits (referring to tax credits received in cash or in cash values within 4 years from the time a constituent entity meets the conditions for benefits; hereafter the same shall apply in this Chapter) and qualified transferable tax credits (referring to transferable tax credits that are marketable assets and can be used for the payment of covered tax by a constituent entity that satisfies the conditions for benefits; hereafter the same shall apply in this Chapter);

13. Adjustment following the correction of errors in the preceding term (referring to the cases where net profit or loss in accounting is increased or decreased, as a constituent entity corrects errors in accounting in the past fiscal years to which Chapter 5 of the Act and this Chapter or the statutes or regulations of other countries equivalent thereto applied (hereafter referred to as the "GloBE tax system" in this Chapter)) or the changes in accounting policies (referring to the cases where net profit or loss in accounting is increased or decreased until the fiscal year immediately preceding the relevant fiscal year, as a constituent entity changes the accounting policies or accounting principles applied to the relevant fiscal year);

14. Adjustment following the reflection of results of consolidated accounting adjustments between constituent entities (referring to accounting adjustments conducted to remove income, expenses, profits, and losses arising from internal transactions between constituent entities subject to consolidated tax payment in the same country);

15. Adjustment based on the application of realization principle (referring to the recognition of profits and losses at the time when the assets and liabilities of a constituent entity subject to accounting for fair value assessment and damage loss assessment in consolidated financial statements are transferred or repaid);

16. Adjustment based on the application of the arm's length price and the same price principle (referring to the principle that the transaction price between constituent entities located in different countries for tax purposes shall be determined by applying the conditions established in comparable third-party transactions, not the actual transaction price, and that all transactions between constituent entities located in different countries shall be recorded at the same amount in their respective accounting books);

17. Adjustment of profits or losses related to policyholders (referring to profits or losses incurred in connection with policyholders, such as taxes paid by a constituent entity engaged in insurance business on profits reverted to policyholders);

18. Adjustment pursuant to dividends on other core capital, etc. (referring to dividends paid or to be paid, or received or to be received on other core capital or restricted core capital issued or acquired by a constituent entity engaged in banking business or insurance business in accordance with regulation of capital soundness or solvency regulation under relevant statutes or regulations);

19. Adjustment according to the reflection of other matters concerning consolidation adjustments (referring to matters concerning consolidation which are not separately appropriated in the accounting of a constituent entity, other than for the purpose of eliminating internal transactions and applying purchase accounting).

(2) Detailed matters concerning the methods of adjustment for each adjustment item referred to in subparagraphs of paragraph (1) shall be prescribed by Decree of the Ministry of Economy and Finance.

[This Article Added on Dec. 29, 2023]

[Previous Article 104 moved to Article 148 <Dec. 29, 2023>]

Article 106(Scope of international shipping income and loss excluded from calculation of GloBE income and loss) #

(1) "Any international shipping income or loss prescribed by Presidential Decree, such as the income obtained from the passengers or cargo by ships operated in international traffic" in Article 66 (3) of the Act means the net profit or loss of a constituent entity generated by conducting any of the following business (hereafter referred to as "international shipping business" in this Article); provided, where the details of international shipping business related to transportation activities of vessels (referring to the activities of transporting passengers and cargo; hereafter the same shall apply in this Article) include the portion carried out in an inland waterway of the same country, the amount of income and loss generated by conducting such portion of business shall be excluded from the net profit or loss generated under the main clause:

1. Transportation activities through ships for international navigation owned or leased, or disposal authority of which is held by constituent entities;

2. Transportation activities of ships for international navigation under part of the charter contracts;

3. Lease of ships (including ship equipment, seafarers and ship supplies) to be used for transportation activities by international navigation;

4. Lease to another constituent entity a ship to be used for the transportation activities through international navigation as a bareboat charter;

5. Participation in joint navigation or joint projects for transportation activities of ships sailing internationally, or participation in international marine transportation organizations;

6. Sale of ships used for transportation activities for international navigation and held by constituent entities for at least one year;

(2) "Any qualified ancillary international shipping income or loss prescribed by Presidential Decree" in Article 66 (3) of the Act means the net profit or loss generated from any of the following activities performed in connection with transportation activities for international navigation; provided, if the sum of qualified ancillary international shipping income and loss of a constituent entity located in one country exceeds 50/100 of the total sum of international shipping income and loss specified in paragraph (1), the excess shall be excluded from the net profit or loss under the main clause:

1. Lease of bare charter to shipping enterprises other than constituent entities (limited to cases where the charter period does not exceed three years);

2. Sale of tickets issued by other shipping companies navigating domestic section of international navigation route;

3. Lease of containers (including claims for delayed charges due to delayed return of containers) and short-term storage for not more than five days usually;

4. Services provided by engineers, maintenance staff, cargo handling personnel, catering service personnel, and customer service personnel to other shipping enterprises;

5. Necessary investment for the operation of international shipping business (including the operation of deposits or short-term working funds necessary for the operation of international shipping business, entrustment of guarantee bonds required by statutes, etc., and excluding cash flow management and treasury activity for other constituent entities).

(3) The amount excluded from the net profit or loss under the main clause, with the exception of the subparagraphs, of paragraph (2), pursuant to the proviso, with the exception of the subparagraphs, of the same paragraph shall be included in the calculation of the GloBE income and loss of the relevant constituent entity in proportion to the amount of the qualified ancillary international shipping income or loss of each constituent entity.

(4) Except as otherwise provided for in paragraphs (1) through (3), specific methods, etc. of calculating net profit or loss generated from international shipping business shall be prescribed by Decree of the Ministry of Economy and Finance.

[This Article Added on Dec. 29, 2023]

Article 107(Calculation of net profit or loss in accounting of permanent establishment) #

(1) The methods of calculating net profit or loss in the accounting of a permanent establishment under Article 66 (4) of the Act shall be as follows: <Amended on Feb. 29, 2024; Feb. 28, 2025>

1. Net profit or loss in the accounting of the Type 1 permanent establishment, Type 2 permanent establishment, Type 3 permanent establishment (referring to the net profit or loss in the separate accounting of the relevant permanent establishment, and if the relevant business establishment does not have separate accounting, it shall be the net profit or loss in the accounting, assuming that a separate account is recorded and managed in accordance with the UPE accounting standards): To be calculated by reflecting only the profits and expenses reverted to the relevant permanent establishment, as prescribed in the following treaties or tax laws:

(a) Type 1 permanent establishment: A tax treaty in effect between the country where the relevant permanent establishment is located and the country where the head office under the former part of Article 61 (1) 9 of the Act (hereinafter referred to as "head office") is located;

(b) Type 2 permanent establishment: Tax laws of the country of residence of the relevant permanent establishment;

2. Net profit or loss in the accounting of Type 4 permanent establishment: It shall be calculated according to the following formula:

┌───────────────────────────────────────────┐

│ Accounting Net Profit or Loss = A - B │

│ A: Profits not taxed in the country of residence of the head office and attributable to activities carried out outside the country of residence │

││

│ B: Expenses not deductible for tax purposes in the country of residence of the head │

│ office and attributable to activities performed outside the country of residence │

└───────────────────────────────────────────┘

(2) "Cases prescribed by Presidential Decree, such as where the deficit of the permanent establishment is included in deductible expenses in the calculation of domestic taxable income of the head office of the permanent establishment" in the proviso of Article 66 (5) of the Act means cases where all of the following requirements are satisfied: <Added on Feb. 29, 2024>

1. The deficit of a permanent establishment shall be included in deductible expenses in the calculation of the domestic taxable income of the head office of the relevant permanent establishment;

2. The deficit of a permanent establishment shall not be offset against any taxable income item under the tax laws of the country of residence of the relevant permanent establishment and the tax laws of the country of residence of the head office of the relevant permanent establishment.

(3) If the GloBE income of the relevant permanent establishment occurs in the fiscal year after the deficit of the permanent establishment is included in deductible expenses in the calculation of the GloBE income and loss of the head office of the relevant permanent establishment under the proviso of Article 66 (5) of the Act, the income of the relevant permanent establishment shall be included in the calculation of GloBE income and loss of the head office of the relevant permanent establishment, within the limit of the deficit of the relevant permanent establishment that is included in the deductible expenses of the head office. <Added on Feb. 29, 2024>

[This Article Added on Dec. 29, 2023]

[Title Amended on Feb. 29, 2024]

Article 108(Distribution of net profit or loss in accounting of pass-through entities) #

(1) In accordance with Article 66 (6) of the Act, if all or part of the business of the relevant pass-through entity is conducted through a permanent establishment, the net profit or loss in the accounting of a pass-through entity shall be calculated as specified in Article 107 and distributed to the relevant permanent establishment, and the net profit or loss remaining after such distribution shall be distributed as classified in the following subparagraphs: <Amended on Feb. 29, 2024; Feb. 28, 2025>

1. Where a pass-through entity is recognized as a fiscally transparent entity in the country of residence of a shareholder constituent entity that falls under any of the following items (hereinafter referred to as "qualifying equity holders") under applicable tax laws and constitutes the UPE: The income attributable to such entity shall be allocated to the pass-through entity:

(a) A company that is a constituent entity that directly holds the equity interest of the relevant pass-through entity, and that is not a pass-through entity;

(b) A company that is a constituent entity that indirectly holds the equity interest of the relevant pass-through entity through another pass-through entity, and which is not a pass-through entity;

(c) The UPE (limited to cases where all constituent entities that directly or indirectly hold equity interest in the relevant pass-through entity are themselves pass-through entities);

2. Where a pass-through entity is recognized as a fiscally transparent entity but is not the UPE: The income shall be allocated to each qualifying equity holder in proportion to the equity interest held by such qualifying equity holder;

3. Where a pass-through entity is not treated as a fiscally transparent entity in the country of residence of the qualifying equity holder (hereinafter referred to in this Chapter as a "reverse hybrid entity"): The income shall be allocated to the pass-through entity.

(2) For the purposes of paragraph (1), whether a pass-through entity constitutes a fiscally transparent entity or a reverse hybrid entity shall be determined separately for each qualifying equity holder of the pass-through entity; provided, if the pass-through entity meets all of the following requirements, it shall be deemed a fiscally transparent entity to the extent that it is not treated as a tax resident or domestic corporation in any country based on the criteria such as its place of effective management or place of establishment (excluding cases where it is only obligated to pay taxes on income sourced within that country), and its income or profits are not subject to covered taxes or qualified domestic minimum top-up taxes under Article 70 (5) of the Act: <Amended on Feb. 28, 2025>

1. The pass-through entity shall be treated as fiscally transparent for tax purposes in the country of residence of the qualifying equity holder;

2. It shall not have a place of business in the country where the relevant pass-through entity is located;

3. The revenues, expenses, profits or losses of the relevant pass-through entity shall not be attributed to the permanent establishment.

(3) In applying paragraph (1), where a person who is not affiliated with the same MNE Group directly, or indirectly through at least one pass-through entity (limited to corporations affiliated with the same MNE Group as the relevant pass-through entity; hereafter the same shall apply in this Article), holds the equity interest of the pass-through entity, the net profit or loss in accounting attributable to the equity interest shall be excluded from the net profit or loss in accounting distributed under the same paragraph. <Amended on Feb. 29, 2024; Feb. 28, 2025>

(4) Notwithstanding paragraph (3), when applying paragraph (1), paragraph (3) shall not apply where the pass-through entity is the UPE; where the UPE, which is itself a pass-through entity, directly, or indirectly through one or more fiscally transparent entities, holds equity interests in the relevant pass-through entity, paragraph (3) shall not apply to the extent that such equity interests are held indirectly through the UPE. In such cases, the calculation of GloBE income or loss shall be governed by Article 77-2 (2) of the Act. <Added on Feb. 28, 2025>

[This Article Added on Dec. 29, 2023]

Article 109(Scope of covered tax) #

(1) "Taxes ... which are prescribed by Presidential Decree, such as taxes imposed on the income or profits of the constituent entity" in the former part of Article 67 (1) of the Act means the following taxes:

1. Taxes imposed on the income or profits of the relevant constituent entity;

2. Taxes imposed on the amount equivalent to the ratio of ownership interest out of the income or profits of another constituent entity, the ownership interest of which is held by the relevant constituent entity;

3. Taxes imposed on the amount distributed (including the amount deemed distributed) or non-business-related expenses disbursed by a constituent entity governed by the eligible distribution tax system referred to in Article 78 (1) of the Act (hereafter referred to as "eligible distribution tax system" in this chapter);

4. Taxes imposed in lieu of corporate taxes generally applied (including those prescribed by Decree of the Ministry of Economy and Finance, such as withholding taxes);

5. Taxes imposed in connection with earned surplus and capital (including taxes on multiple components based on income and capital);

(2) Notwithstanding paragraph (1), the following taxes shall not be deemed covered taxes: <Amended on Feb. 28, 2025>

1. Qualified domestic minimum top-up tax paid by constituent entities pursuant to Article 70 (5) of the Act;

2. Top-up tax paid by the parent entity according to the qualified income inclusion rule under Article 72 (4) 1 of the Act;

3. Top-up tax paid by the constituent entity according to the under taxed payment rule (UTPR) under Article 73 (4) of the Act;

4. Non-qualified refundable attributed taxes that are paid by a constituent entity on income that is the source of dividends, as prescribed by Decree of the Ministry of Economy and Finance;

5. Taxes paid by insurance companies on profits vested in policyholders;

(3) In calculating adjusted covered taxes pursuant to Article 67 (1) of the Act, the same covered taxes shall not be repeated.

[This Article Added on Dec. 29, 2023]

Article 110(Matters subject to adjustment of covered tax) #

"Other adjustments prescribed by Presidential Decree" in the former part of Article 67 (1) of the Act means the following matters subject to adjustment: <Amended on Feb. 28, 2025>

1. Addition of each of the following amounts:

(a) The amount of covered taxes which are appropriated as expenses in the calculation of pre-tax profits in accounting;

(b) The amount of covered tax paid in the relevant fiscal year, which is related to uncertain tax treatment items (referring to tax treatment items for which it is uncertain whether the tax authority has appropriated, such as the standards for treatment for tax purposes are not clear or in accordance with the final parent corporate accounting standards, such as the standards for treatment for tax purposes are not clear or inconsistent with the interpretation and application of tax laws by the tax authorities, in which cases the covered tax is appropriated in accordance with the UPE accounting standard; hereafter the same shall apply in this chapter), which has been treated as deducted pursuant to subparagraph 2 in the previous fiscal year;

(c) Qualified refundable tax credit amount or qualified transferable tax credit amount that is tax credits or refundable tax amounts that are deducted from current corporate tax expense.

(d) Special deferred tax asset for loss treatment deemed to have been used under Article 113-3 (4).

2. Deduction of each of the following amounts:

(a) Current corporate tax expenses for income excluded from the calculation of GloBE income or loss pursuant to Article 66 (1) and (3) of the Act;

(b) Any amount of a non-qualified refundable tax credit (referring to a tax credit that is refundable in whole or in part and that does not qualify as a qualified refundable tax credit; hereinafter the same shall apply in this Chapter), which has not been processed as a reduction to the current corporate income tax expense; provided, if a non-qualified refundable tax credit arising in a fiscal year prior to the first fiscal year in which the GloBE Rules apply (hereinafter referred to in this Chapter as the "first applicable fiscal year") is settled as a tax credit or cash payment in a fiscal year after the first applicable fiscal year, such amount shall not be deducted;

(c) An amount prescribed by Decree of the Ministry of Economy and Finance, such as the amount of non-qualified transferable tax credit (referring to tax credits paid with assets that are transferable but not marketable), which is not treated as a deduction of the current corporate tax expenses;

(d) The amount of covered tax credits that are refunded or deducted, excluding the qualified refundable tax credits and the qualified transferable tax credits, which are not deducted from the current corporate tax expense in accounting;

(e) Current corporate tax expenses related to uncertain tax treatment items;

(f) Current corporate tax expenses expected not to be paid within three years from the date immediately following the end of the relevant fiscal year;

3. Addition to or deduction from an increased or decreased amount of covered taxes satisfying all of the following requirements:

(a) The amount shall be included in the calculation of the GloBE income and loss of a constituent entity;

(b) The amount shall be corresponding to the profit or loss which is subject to taxation in the country of residence of the relevant constituent entity, which shall be reflected in the items of capital or other comprehensive profit or loss in accounting.

[This Article Added on Dec. 29, 2023]

Article 111(Distribution of covered taxes among constituent entities) #

(1) Pursuant to the latter part of Article 67 (1) of the Act, the covered taxes of any of the following constituent entities shall be distributed to other constituent entities specified in the relevant subparagraph: <Amended on Feb. 29, 2024; Feb. 28, 2025>

1. Covered taxes recognized in the financial accounts of a constituent entity that is the head office, which are attributed to the GloBE income and loss of a permanent establishment: To be distributed to the relevant permanent establishment;

2. Covered taxes that are recognized in the financial accounts of a fiscally transparent entity, or covered taxes that are allocated to a fiscally transparent entity designated as a controlled foreign corporation under subparagraph 5, which correspond to GloBE income and loss: To be allocated to the qualifying equity holders;

3. Covered taxes that are recognized in the financial accounts of a shareholder constituent entity, and that relate to the income derived by a hybrid entity (referring to an entity that is subject to taxation in the country where relevant entity is located, which is treated as fiscally transparent in the country of residence of its direct or indirect equity holders, excluding any entity deemed to be a pass-through entity under the proviso of Article 108 (2); hereinafter the same shall apply in this subparagraph): To be allocated to the relevant hybrid entity;

3-2. Covered taxes that are recognized in the financial accounts of a constituent entity that directly or indirectly holds the equity interest of a qualifying equity holder, and that relate to the income derived by a reverse hybrid entity: To be allocated to the reverse hybrid entity;

4. Covered taxes on dividends (including those regarded as dividends under the tax laws of the country of residence of the constituent entity-owners) paid by constituent entities in the fiscal year, which are recognized in the special accounts of a constituent entity-owner that directly holds the ownership shares of the relevant constituent entities: To be distributed to the constituent entities that pay the relevant dividends;

5. Covered taxes paid by a qualifying equity holder under any of the following tax regimes: To be allocated to a controlled foreign corporation (referring to an entity located in a foreign country in which the shareholder directly or indirectly holds equity interests; hereinafter the same shall apply in this subparagraph) that derives income attributable to such covered taxes:

(a) A tax regime under which a shareholder is required to pay covered taxes on the portion of income of a controlled foreign corporation corresponding to its equity interest (including the deemed dividend regime for undistributed earnings of specified foreign corporations under Article 27 of the Act; hereinafter in this Chapter referred to as the "controlled foreign corporation taxation regime");

(b) A tax regime under which, if the income and losses attributable to the equity interest held by a shareholder among the equity interests held by controlled foreign corporations located around the world are aggregated, and the taxes paid by the controlled foreign corporations (limited to those eligible for foreign tax credits in the shareholder's country of residence) attributable to the shareholder's equity interest are also aggregated, and the tax rate thus calculated is lower than the standard tax rate determined in the relevant shareholder's country of residence, the tax amount equivalent to the shortfall in tax rate is subject to taxation in the shareholder's country of residence (hereafter referred to in this Chapter as the "integrated controlled foreign corporation taxation regime");

6. Where the GloBE income or loss of a permanent establishment is included in the GloBE income or loss of the head office of the relevant permanent establishment under the proviso of Article 66 (5) of the Act and Article 107 (2) and (3) of this Decree, the covered tax payable to the country of domicile of the relevant permanent establishment in relation to such income: To be distributed to the head office of the relevant permanent establishment.

7. Where the country of residence of a constituent entity adopts a foreign tax credit system prescribed by Decree of the Ministry of Economy and Finance, the covered tax to be paid by the relevant constituent entity to the country of residence of the relevant constituent entity in connection with foreign source income: To be distributed to other constituent entities belonging to the same MNE Group as the relevant constituent entity.

(2) Matters concerning the distribution limit at the time of distribution under paragraph (1), detailed methods of distribution by covered tax and others shall be prescribed by Decree of the Ministry of Economy and Finance. <Amended on Feb. 28, 2025>

[This Article Added on Dec. 29, 2023]

Article 112(Calculation of total deferred tax adjustment amount) #

(1) "Adjustments prescribed by Presidential Decree, such as excluding the deferred tax expense with regard to the income or loss not included in the calculation of the GloBE income or loss" in the former part of Article 67 (2) of the Act means the following adjustments: <Amended on Feb. 28, 2025>

1. Where the value of assets and liabilities used as the basis for calculating GloBE income or loss (hereinafter in this subparagraph referred to as the "GloBE value") differs from the carrying value of such assets and liabilities under financial accounting, or in other cases prescribed by Decree of the Ministry of Economy and Finance, the deferred corporate tax expense under financial accounting shall be adjusted based on the GloBE value;

1-2. Exclusion of amounts specified in any of the following items:

(a) Deferred tax expenses on profits and losses excluded from the calculation of GloBE income and loss pursuant to Article 66 (1) and (3) of the Act;

(b) Deferred tax expenses related to the following items:

(i) Adjustment of evaluation or recognition of deferred tax assets reflecting adjustment of prospects for taxable income for the future fiscal year and others;

(ii) Recalculation following changes in corporate tax rates;

(iii) Incurrence or use of tax credits carried forward (excluding tax credits carried forward for deferred tax assets prescribed by Decree of the Ministry of Economy and Finance, which are related to deficits in domestic source or amount of foreign tax paid);

(iv) The recognition of deferred tax liabilities that are not expected to reverse within the period during which corporate income tax is paid in connection with deferred tax liabilities under Article 67 (3) of the Act (referring to current tax expense arising from the reversal of temporary differences between the carrying value and the tax base of assets or liabilities; hereinafter in this Chapter referred to as "reversal"); provided, this shall apply only where the deferred tax expense is excluded from the total deferred tax adjustment amount by means of either annual election by the filing constituent entity (which applies only to the fiscal year for which the election is made; hereinafter the same shall apply in this Chapter) or the five-year election as prescribed by Decree of the Ministry of Economy and Finance;

(c) The amount of matters prescribed by Decree of the Ministry of Economy and Finance, such as deferred corporate tax expenses following uncertain tax treatment items;

2. Addition of the following amounts:

(a) The amount of deferred corporate tax expenses reversed during the relevant fiscal year, which falls under subparagraph 1-2 (b) (iv) in the previous business year;

(b) The amount of reversal of deferred tax liabilities from prior fiscal years (referring to an amount related to deferred tax liabilities that were not reversed within the period specified in Article 67 (3) of the Act; the same shall apply in this Chapter) but reversed during the relevant fiscal year;

3. Deduction of the decreased amount of total deferred corporate tax adjustment amount, which meets all of the following requirements:

(a) The relevant deferred corporate tax assets have not been appropriated in accounting because the tax deficits for the relevant fiscal year failed to meet the standards for recognition of deferred corporate tax assets for accounting;

(b) If the relevant deferred corporate tax assets have been appropriated in accounting as tax deficits in the relevant fiscal year are recognized as deferred corporate tax assets in accounting, the total amount of deferred corporate tax adjustment shall have been decreased;

(2) In applying paragraph (1), if a constituent entity vindicates that the deferred corporate tax assets appropriated at a tax rate below the minimum tax rate are caused by GloBE loss, the relevant deferred corporate tax assets may be recalculated at the minimum tax rate, and the increased amount thereof may be deducted from the total amount of deferred corporate tax adjustment of the fiscal year in which the relevant deferred corporate tax assets are generated.

[This Article Added on Dec. 29, 2023]

Article 113-2(Calculation of reversal of deferred tax liabilities) #

(1) The amount of reversal of deferred tax liabilities shall be calculated by deducting the non-qualifying balance of the immediately preceding business year from the non-qualifying balance of the constituent entities for the relevant fiscal year (referring to an amount calculated according to the following formula; hereafter the same shall apply in this Article) under Article 67 (3) of the Act; provided, if the result of such calculation is negative, the relevant amount shall be deemed an amount specified in Article 112 (1) 2 (b).

│ Non-Qualified Amount = A ? B │

│ A: The amount of deferred tax liabilities as of the end of the fiscal year (excluding the amount of │

│ deferred tax liabilities as of the end of the fiscal year immediately preceding the first inclusion year) │

│ B: The total amount of deferred tax liabilities recognized during the current fiscal year │

│ and the 4 immediately preceding fiscal years (referring to the amount of increase in │

│ deferred tax liabilities as of the end of the fiscal year compared to the amount as of the │

│ end of the immediately preceding fiscal year, where such increase exists; hereafter the same shall apply in this Article), minus the total amount of reversals of deferred tax │

│ liabilities (referring to the amount of decrease in deferred tax liabilities as of the end of │

│ the fiscal year compared to the amount as of the end of the immediately preceding fiscal year, as calculated as prescribed by Decree of the Ministry of Economy and Finance) │

(2) For the purpose of calculating the amount of reversal of deferred tax liabilities under paragraph (1), the amount of deferred tax liabilities recognized shall be determined on the basis of the units specified in each of the following subparagraphs:

1. Individual assets and liabilities;

2. Accounts in the general ledger (hereafter in this paragraph referred to as “Accounts”);

3. A grouping of two or more accounts (including a grouping that combines subparagraphs 1 and 2).

(3) Notwithstanding paragraph (1), in cases prescribed by Decree of the Ministry of Economy and Finance where the amount of reversal of deferred tax liabilities is calculated by the unit specified in paragraph (2) 2 or 3, as prescribed by Decree of the Ministry of Economy and Finance, the amount of reversal of deferred tax liabilities calculated by the relevant unit shall be deemed nil.

(4) The method of calculating the amount of deferred tax liabilities necessary for calculating the amount of reversal of deferred tax liabilities under paragraph (1), detailed standards for each unit under the subparagraphs of paragraph (2), etc. shall be prescribed by Decree of the Ministry of Economy and Finance.

[This Article Added on Feb. 28, 2025]

Article 113-3(Applicability to special treatment for GloBE losses) #

(1) "Amount prescribed by Presidential Decree" as referred to in Article 67 (4) of the Act means, in cases where the net GloBE income amount for the relevant jurisdiction in the fiscal year, as calculated under Article 69 (2) 2 of the Act (referring to an amount excluding the UPE where such entity is a pass-through entity; hereafter in this Article referred to as the "net GloBE income amount") is negative, the amount calculated by multiplying such amount (hereinafter referred to in this Article as the "net GloBE loss amount") by the minimum rate (hereafter referred to in this Article as the "deferred tax asset for special loss treatment").

(2) Where the UPE is a pass-through entity, a filing constituent entity may, separately from other constituent entities located in the same jurisdiction, elect whether to apply the special treatment for GloBE losses under Article 67 (4) of the Act to such UPE (hereinafter in this Article referred to as the "special treatment for losses").

(3) Where a filing constituent entity elects to apply special treatment for losses to the UPE in accordance with paragraph (2), the amount under paragraph (1) shall be calculated by treating the GloBE income amount and the GloBE loss amount of such UPE, as calculated under Article 77-2 (2) of the Act, as the net GloBE income amount and the net GloBE loss amount, respectively.

(4) The deferred tax asset for special loss treatment calculated under paragraphs (1) and (3) shall be deemed to have been used in a fiscal year in which a net GloBE incomes arise after the fiscal year elected to apply the special loss treatment under Article 67 (4) of the Act, in an amount equal to the lesser of the amounts specified in the following subparagraphs, and the relevant amount shall be added to covered taxes of one of the constituent entities to which the special loss treatment for that fiscal year applies:

1. The amount obtained by multiplying the net GloBE income by the minimum tax rate;

2. The remaining balance of deferred tax assets for special loss treatment as of the end of the immediately preceding fiscal year.

(5) Where a filing constituent entity revokes its election to apply the special loss treatment under Article 67 (6) 2 of the Act, the remaining balance of the deferred tax asset for special loss treatment shall be deemed to be zero as of the commencement date of the fiscal year to which such revocation applies. In such case, Article 81 of the Act shall apply mutatis mutandis to the calculation of the total deferred tax adjustment amount for purposes of computing the adjusted covered taxes of constituent entities located in the country of residence for which the application of special loss treatment is revoked.

[This Article Added on Feb. 28, 2025]

Article 118(Calculation of amount of substance-based income exclusion) #

(1) "The sum of the excluded amounts related to payroll costs and the book value of tangible assets prescribed by Presidential Decree" in Article 70 (3) of the Act means the aggregate of the amounts specified in subparagraphs 1 and 2 (hereafter referred to as "substance-based income exclusion" in this chapter):

1. The amount obtained by multiplying the payroll costs prescribed by Decree of the Ministry of Economy and Finance (hereafter referred to as "qualified payroll costs" in this chapter) paid to employees who provide labor for the relevant MNE Group in the country where each constituent entity is located, who are prescribed by Decree of the Ministry of Economy and Finance (hereafter referred to as "qualified employees" in this chapter), by the ratio classified as follows:

(a) For a fiscal year beginning in 2024: 98/1000;

(b) For a fiscal year beginning in 2025: 96/1000;

(d) For a fiscal year beginning in 2027: 92/1000;

(e) For a fiscal year beginning in 2028: 90/1000;

(f) For a fiscal year beginning in 2029: 82/1000;

(g) For a fiscal year beginning in 2030: 74/1000;

(h) For a fiscal year beginning in 2031: 66/1000;

(i) For a fiscal year beginning in 2032: 58/1000;

(j) For a fiscal year beginning after 2033: 50/1000;

2. The amount calculated by multiplying the book value of tangible assets prescribed by Ministerial Decree of the Economy and Finance (hereafter referred to as "qualified tangible assets" in this chapter) by the following ratios:

(a) For a fiscal year beginning in 2024: 78/1000;

(b) For a fiscal year beginning in 2025: 76/1000;

(d) For a fiscal year beginning in 2027: 72/1000;

(e) For a fiscal year beginning in 2028: 70/1000;

(f) For a fiscal year beginning in 2029: 66/1000;

(g) For a fiscal year beginning in 2030: 62/1000;

(h) For a fiscal year beginning in 2031: 58/1000;

(i) For a fiscal year beginning in 2032: 54/1000;

(j) For a fiscal year beginning after 2033: 50/1000;

(2) The specific calculation methods, etc. of the qualified payroll costs and the book value of qualified tangible assets shall be prescribed by Decree of the Ministry of Economy and Finance.

[This Article Added on Dec. 29, 2023]

Article 120(Requirements for qualified domestic minimum top-up tax system) #

(1) "Qualified domestic minimum top-up tax system of the relevant country prescribed by Presidential Decree" in the provisions, with the exception of the subparagraphs, of Article 70 (5) of the Act means a system which satisfies all of the following requirements: <Amended on Feb. 29, 2024>

1. The amount of excess profits of the relevant country shall be calculated in accordance with the recognized accounting standards or publicly accredited accounting standards that have undergone material distortion prevention adjustment in a manner consistent with the Global Anti-Base Erosion Rules internationally agreed upon;

2. The tax burden on the amount of excess profits under subparagraph 1 of the relevant country shall be increased to the amount calculated by multiplying the relevant amount of excess profits by the minimum tax rate;

3. The system shall be implemented in a manner that leads to the results corresponding to the results of applying the GloBE Rules internationally agreed upon, and shall not provide an entity bearing top-up taxes according to the GloBE Rules with any benefits (including tax benefits and subsidies) related to the GloBE Rules.

(2) "Where the qualified domestic minimum top-up tax system for the country of residence of a constituent entity of the relevant MNE Group satisfies the requirements prescribed by Presidential Decree, such as the accounting requirements for deeming the top-up tax for the relevant business year as nil" in Article 70 (5) 2 of the Act means the cases where the qualified domestic minimum top-up tax system in the country of residence of the constituent entity of the relevant MNE Group satisfies all of the following requirements, and the filing constituent entity elects to deem the top-up tax for the relevant fiscal year as nil: <Added on Feb. 29, 2024; Feb. 28, 2025>

1. Accounting requirements: When a constituent entity calculates its net profit or loss in accounting, it shall comply with any of the following accounting standards; provided, if some constituent entities located in the relevant country fail to meet the requirements under the latter part, with the exception of sub-items (i) and (ii) of the item (c), or the fiscal year of some constituent entities located in the relevant country is different from the fiscal year as described on the consolidated financial statements, it shall comply with the accounting standards under item (a) or (b):

(a) Accounting standards of UPE;

(b) Any of the following accounting standards (limited to cases where it is difficult to calculate the net profit or loss in accounting of a constituent entity in accordance with the accounting standards for UPE, where it is applicable only when the requirements under each subparagraph of Article 105 (1) are satisfied):

(i) Recognized accounting standards;

(ii) Publicly accredited accounting standards;

(c) Accounting standards approved by a publicly accredited accounting organization authorized in the country of domicile of the constituent entity, which corresponds to any of the following accounting standards; in such cases, it shall be limited to the cases where the constituent entity is required to prepare an accounting account in compliance with the relevant accounting standards, and the relevant accounting account is required to be prepared in compliance with the company laws or tax laws of the country of domicile of the constituent entity, or to be subject to an external audit:

(i) Recognized accounting standards;

(ii) Publicly accredited accounting standards that have undergone the adjustment for prevention of significant distortions;

2. Consistency requirements: It shall satisfy any of the following requirements:

(a) The results of applying the qualified domestic minimum top-up tax system of the country of domicile of the constituent entity of a MNE Group shall be consistent with the result of applying the GloBE Rule internationally agreed upon;

(b) The amount of substance-based income exclusion shall not be recognized or the amount of substance-based income exclusion shall be recognized at amount lower than the amount calculated by applying the GloBE Rules internationally agreed upon;

(c) Special cases on de minimis exclusion (referring to the rules of other countries equivalent to the special cases on de minimis exclusion under Article 74 of the Act; hereafter the same shall apply in this item) shall not be recognized, or the standard amount for sales and GloBE income and loss for applying special cases on de minimis exclusion shall be prescribed to be less than the standard amount prescribed by the GloBE Rule internationally agreed upon;

(d) The tax rate under the qualified domestic minimum top-up tax system shall be stipulated to be higher than the minimum tax rate;

3. Operational requirements: It shall satisfy the requirements prescribed by Decree of the Ministry of Economy and Finance, as it relates to the monitoring of the application of the GloBE Rule internationally agreed upon.

[This Article Added on Dec. 29, 2023]

[Title Amended on Feb. 29, 2024]

Article 121(Calculation of top-up taxes of constituent entities) #

(1) When calculating the top-up taxes of a constituent entity for each fiscal year pursuant to Article 71 of the Act, if the relevant country has no net GloBE income under Article 69 (2) 2 of the Act in the relevant fiscal year, the additional current top-up taxes of the relevant country shall be allocated to each constituent entity:

1. In the cases of additional current top-up taxes under Article 119 (1): To be distributed to each constituent entity of the relevant country in proportion to the standard allocation amount according to the following calculation formula:

┌───────────────────────────────────────────┐

│ Accounting Net Profit or Loss = A - B │

│ A: Income not taxed in the country of residence of the head office and attributable to activities carried out outside the country of residence │

│ B: Expenses not deductible for tax purposes in the country of residence of the head office and │

│ attributable to activities performed outside the country of residence │

└───────────────────────────────────────────┘

2. In the cases of additional current top-up taxes under Article 119 (2): To be distributed to each constituent entity of the relevant country (limited to the constituent entity of which adjusted covered taxes for the relevant fiscal year is negative and is smaller than the estimated amount of adjusted covered taxes of the relevant constituent entity in the relevant fiscal year), in proportion to the standard allocation amount according to the following calculation formula:

┌───────────────────────────┐

│ Accounting Net Profit or Loss = A - B │

│ A: Income not taxed in the country of residence of the head office and attributable to activities carried out outside the country of residence │

│ B: Expenses not deductible for tax purposes in the country of residence of the head office and attributable to activities performed outside the country of residence │

└───────────────────────────┘

(2) A constituent entity to which the additional current top-up taxes are distributed pursuant to paragraph (1) shall be deemed a low-taxed constituent entity when applying Articles 72 and 73 of the Act.

[This Article Added on Dec. 29, 2023]

Article 128(Treatment of constituent entity in reorganization) #

(1) If a target entity provided in the main clause of Article 76 (1) of the Act (hereafter referred to as "target entity" in this Article) becomes a constituent entity of a MNE Group (including the cases where a target entity becomes the UPE of a new MEN Group) or if it is excluded from a constituent entity of a MNE Group, Chapter 5 and this Chapter shall apply to the fiscal year of transfer (referring to the fiscal year in which the direct or indirect ownership interest in the target entity is transferred; hereafter the same shall apply in this Article) in a manner specified in the following subparagraphs; In such cases, the methods of specific application of the relevant provisions shall be prescribed by Decree of the Ministry of Economy and Finance:

1. In the case of a target entity: Where part of the assets, liabilities, revenues, expenses, or cash flows of the relevant entity are itemized in the consolidated financial statements of the UPE of a MNE Group, the relevant entity shall be treated as a constituent entity of the relevant MEN Group;

2. In the case of a MNE Group: Only an amount included in the consolidated financial statements of the UPE of the relevant MNE Group, out of the net profit or loss in accounting and the adjusted covered taxes of a target entity, shall be included in the calculation of the GloBE income and loss and adjusted covered taxes of the relevant target entity.

(2) "Cases prescribed by Presidential Decree" in the proviso to Article 76 (1) of the Act means the cases where the transfer of the ownership interest in a target entity in the country of residence of the target entity that is a constituent entity (referring to a country where the relevant asset is located, if the target entity is a tax transparent entity) is deemed the transfer of assets and liabilities of the target entity for tax purposes or similar thereto, and the difference between the taxable value of the relevant assets and liabilities and the consideration of transfer of ownership interests or the fair value of the relevant assets and liabilities are taxed on the entities similar thereto. It means a case of taxation on the disposing company.

[This Article Added on Dec. 29, 2023]

Article 129(Special cases concerning GloBE reorganization) #

(1) "Where assets and liabilities are disposed of or acquired as part of a reorganization meeting the requirements prescribed by Presidential Decree" in the former part, with the exception of the subparagraphs, of Article 76 (3) of the Act, means the transfer of assets and liabilities or reorganization resulting from merger, division, liquidation, and similar transactions fulfilling the requirements specified in the following subparagraphs (hereafter referred to as "GloBE reorganization" in this Article). In such cases, a qualified merger under Article 44 (2) of the Corporate Tax Act, a qualified division under Article 46 (2) of that Act, and reorganization under Article 78 of that Act shall be deemed a GloBE reorganization:

1. All or part of the consideration for the transfer of assets and liabilities shall be the investment shares of a constituent entity that acquires the assets and liabilities (hereafter referred to as "acquiring constituent entity" in this Article) or of a specially related person (in the case of liquidation, referring to the investment share of a constituent entity that disposes of assets and liabilities (hereafter referred to as a "disposing constituent entity" in this Article), regardless of whether the investment share has economic value);

2. All or part of the gains and losses on the disposal of assets of a disposing constituent entity shall not be taxed;

3. The acquiring constituent entity shall calculate the taxable income after the acquisition date, using the value obtained by adjusting the gains or losses on ineligible disposal pursuant to paragraph (3) 2 to the book value of the assets of a disposal constituent entity before the disposal, in accordance with the tax laws of the country of residence.

(2) "If a disposing constituent entity recognizes part of any loss or gain arising in connection with a reorganization, as prescribed by Presidential Decree" in the latter part, with the exception of the subparagraphs, of Article 76 (3) of the Act means the cases where the lesser of the following amounts (hereafter referred to as "loss or gains on non-qualified disposition" in this Article) are recognized):

1. The amount of gain or loss on disposal taxable in the country of residence of a disposing constituent entity in connection with the reorganization of GloBE reorganization;

2.The amount of gain or loss on disposal in accounting in connection with the GloBE reorganization.

(3) Pursuant to the latter part, with the exception of the subparagraphs, of Article 76 (3) of the Act, gains and losses on non-qualified disposition shall be dealt with in the following manners:

1. A disposing constituent entity: Any gains or losses on the non-qualified disposition shall be included in the calculation of GloBE income or loss;

2. An acquiring constituent entity: It shall calculate the GloBE income and loss after acquisition, using the value after the adjustment of gains or losses on non-qualified disposition (in the case of assets, referring to addition of an amount of gain on non-qualified disposition and deduction of an amount of loss on non-qualified disposition; in the case of liabilities, referring to deduction of an amount of gain on non-qualified disposition and addition of an amount of loss on non-qualified disposition) to the book value of a disposing constituent entity.

(4) Where a filing constituent entity selects to adjust the book value of its assets and liabilities (excluding ordinary assets and liabilities, such as inventory assets; hereafter the same shall apply in this Article) to the fair value in accordance with Article 76 (4) of the Act, the following methods shall be applied sequentially to calculate the GloBE income and loss: <Added on Feb. 29, 2024; Feb. 28, 2025>

1. The difference between the book value before adjustment of assets and liabilities and the fair value after adjustment shall be calculated for each asset and liability, respectively;

2. In calculating the difference between the book value and the fair value in accordance with subparagraph 1, if any gains or losses on the non-qualified disposition exist, the amount of gains on the non-qualified disposition shall be deducted, and the amount of losses on the non-qualified disposition shall be added thereto;

3. The aggregate of differences calculated for each assets and liabilities under subparagraphs 1 and 2 shall be included in the calculation of GloBE income and loss by any of the following methods:

(a) Method of including it in the calculation of the GloBE income and loss for the fiscal year in which the selection of the filing constituent entity is made under Article 76 (4) of the Act;

(b) Method of including the amount calculated by dividing the aggregate of differences calculated by assets and liabilities respectively under subparagraphs 1 and 2 by 5, in the calculation of GloBE income and loss for each business year, for 5 consecutive business years from the business year in which the selection by the filing constituent entity is made under Article 76 (4) of the Act; provided, if the relevant constituent entity leaves the MNE Group during the relevant 5 business years, the entire amount remaining after being included in the calculation of GloBE income and loss for the preceding business year shall be included in the calculation of GloBE income and loss of the business year in which the relevant constituent entity leaves the MNE Group.

(5) In calculating the GloBE income and loss for the fiscal year to which the method under paragraph (4) is applied and for the subsequent fiscal year, it shall be calculated by using the fair value of assets and liabilities in the accounting. <Added on Feb. 29, 2024>

[This Article Added on Dec. 29, 2023]

Article 130(Special cases concerning joint entities) #

(1) "Entities prescribed by Presidential Decree" in the part, with the exception of the subparagraphs, of Article 77 (1) of the Act means an entity not specified in any of the following subparagraphs: <Amended on Feb. 28, 2025>

1. The UPE of a MNE Group to which Chapter 5 of the Act applies (referring to MNE Group other than the MNE Groups referred to in the provisions, with the exception of the subparagraphs, of Article 77 (1) of the Act);

2. Excluded entities specified in any subparagraphs 1 through 6 of Article 102 (1);

3. Any of the following entities that constitute other excluded entities under Article 102 (1) 7 (limited to cases where a controlling entity under the aforesaid subparagraph directly holds ownership shares):

(a) An entity that exclusively or almost exclusively carries out business activities in which it holds assets or invests funds for its investors;

(b) An entity that conducts activities incidental to the activities performed by the controlling entity under Article 102 (1) 7;

(c) An entity whose income is wholly or almost entirely dividend income under Article 104 (1) 2 or equity gains or losses under subparagraph 4 of the same paragraph;

4. An entity of which ownership shares are held by a MNE Group consisting only of excluded entities;

5. Subsidiaries of joint ventures under paragraph (2).

(2) "A subsidiary of the joint venture prescribed by Presidential Decree" in the provisions, with the exception of the subparagraphs, of Article 77 (1) of the Act, means an entity connected to a joint venture provided in the provisions, with the exception of the subparagraphs, of that paragraph (hereinafter referred to as a "joint venture") in accordance with the accredited accounting standards, or an entity that shall be connected to a joint venture assuming that it is governed by the accredited accounting standards (hereafter referred to as "joint venture subsidiary" in this Article). In such cases, a joint venture or a permanent establishment of a joint venture subsidiary shall be deemed a separate joint venture subsidiary.

(3) In regard to a parent entity that directly or indirectly holds ownership shares in a joint venture or a joint venture subsidiary pursuant to Article 77 (1) 2 of the Act, Articles 72 and 73 shall apply as specified in the following subparagraphs:

1. The relevant parent entity shall pay the amount of top-up taxes allocated to a parent entity under Article 72, out of the top-up taxes allocated to each constituent entity of a MNE Group consisting of joint ventures and joint venture subsidiaries;

2. An amount remaining after deducting the amount imposed on each parent entity pursuant to the Qualified IIR from the total amount of top-up taxes allocated to the UPE among top-up taxes allocated to each constituent entity of a MNE Group under subparagraph 1 shall be included in the UTPR top-up taxes of the relevant MNE Group under Article 73 of the Act.

[This Article Added on Dec. 29, 2023]

Article 131(Special cases concerning multi-parented MNE group) #

(1) Chapter V of the Act and this Chapter shall apply to one MNE Group and two or more groups deemed to be its constituent entities (hereafter referred to in this Article as "multi-parented MNE Group") and to the entities of each relevant group pursuant to Article 77 (2) of the Act, as set forth in the following subparagraphs:

1. The UPE of each group consisting of the multi-parented MNE Group shall be respectively deemed the UPE of the relevant multi-parented MNE Group;

2. The consolidated financial statements prepared by the UPE of each group consisting of a multi-parented MNE Group in accordance with the stapled structure under Article 77 (2) 1 (a) of the Act or the dual-listed arrangement under the item (b) of the same subparagraph shall be deemed the consolidated financial statements of the relevant multi-parented MNE Group;

3. The income inclusion rules under Article 72 of the Act shall apply to the parent entity (including the UPE) of a multi-parented MNE Group located in the Republic of Korea.

4. The UTPR under Article 73 of the Act shall apply to a constituent entity of a multi-parented MNE Group located in the Republic of Korea;

5. A multi-parented MNE Group shall file a GloBE information report under Article 83 of the Act to the head of a competent tax office having jurisdiction over the place of tax payment, as prescribed by Decree of the Ministry of Economy and Finance.

(2) "An arrangement prescribed by Presidential Decree" in Article 77 (2) 1 (a) of the Act means an agreement satisfying all of the following requirements:

1. Not less than 50/100 of ownership shares owned by the UPE of each group are mutually combined according to the form of ownership, restrictions on transfer, or other restrictions and conditions, and thus cannot be transferred or traded independently on the capital market, and the ownership shares listed on the stock exchange shall be quoted at a single price;

2. One of the UPE shall prepare the consolidated financial statements (referring to the consolidated financial statements in which the assets, liabilities, revenues, expenses and cash flows of the entities are presented together as a single economic unit) for the entities belonging to all groups in the relevant arrangement in accordance with the recognized accounting standards, and the external audit of those financial statements shall be mandatory.

(3) "Arrangement prescribed by Presidential Decree" in Article 77 (2) 1 (b) of the Act means an agreement satisfying all of the following requirements:

1. If the UPE pay dividends and liquidation to their shareholders, they shall agree to distribute them in a mutually fixed ratio;

2. Each group shall maintain a separate legal identity, but all its activities shall be managed as if by a single economic entity under the relevant arrangement;

3. The ownership shares of each UPE shall be quoted, traded, and transferred independently in different capital markets;

4. The UPE shall prepare the consolidated financial statements (referring to the consolidated financial statements in which the assets, liabilities, revenues, expenses and cash flows of the entities are presented together as a single economic unit) for the entities belonging to all groups in the relevant arrangement in accordance with the recognized accounting standards, and the external audit of those financial statements shall be mandatory.

[This Article Added on Dec. 29, 2023]

Article 132(Special Cases on UPE Subject to Dividend Deduction System) #

(1) In the provisions, with the exception of the subparagraphs, of Article 77-2 (1) of the Act, “dividends prescribed by Presidential Decree” means the dividends classified under each of the following subparagraphs:

1. The UPE that falls under Article 77-2 (1) 1 of the Act: Distributed profits that are deductible from the taxable income of the UPE under the tax laws of the country of residence of the UPE, where the UPE distributes profits (including patronage dividends distributed to the members of cooperatives prescribed by Decree of the Ministry of Economy and Finance (hereafter referred to in this Article as "cooperatives") to its shareholders, members, or investors (hereinafter referred to in this Article as "shareholders, etc."), which are dividend amounts distributed to any of the following persons:

(a) If an amount distributed to a dividend recipient (hereafter in this Article, referred to as "amount of attributable distribution") in the taxable period that ends within 12 months from the date following the end date of the fiscal year in which the GloBE income of a MNE Group is accrued falls under any of the following cases, referring to the relevant dividend recipient:

(i) Where the entire amount of attributable distribution is taxed (in cases of patronage dividends distributed by a cooperative to its members other than natural persons, such dividends shall be deemed taxable to the extent that the dividend recipients‘ deductible expenses or costs in calculating taxable income are reduced; hereinafter the same shall apply in this Article) at the nominal tax rate not less than the minimum tax rate (if a progressive tax rate applies, it refers to the maximum tax rate applicable to the equity holder, assuming that the attributable income amount constitutes the equity holder's entire taxable income; hereafter the same shall apply in Article 133);

(ii) Where it is reasonably expected that the aggregate of adjusted covered taxes of the UPE for income that is the source of the attributable distribution and taxes imposed on the dividend recipients for the relevant attributable distribution will not be less than the amount computed by multiplying the entire amount of relevant attributable distribution by the minimum tax rate;

(iii) Where a dividend recipient is a natural person and the amount of relevant attributable distribution is patronage dividend received from the cooperatives (limited to the cooperatives that purchase goods or services from a third party and supplies it to its members);

(b) A natural person who satisfies all of the following requirements:

(i) The person shall be a resident under the tax laws of the country of residence of the relevant UPE;

(ii) The person shall directly hold equity interest that carry rights to not more than 5/100 of the profits and assets of the relevant UPE, as of the end of the relevant fiscal year;

(c) A governmental enterprise under Article 102 (1) 1, an international organization under subparagraph 2 of that paragraph, a non-profit organization under subparagraph 3 of that paragraph, or a pension fund under subparagraph 4 of that paragraph (excluding a pension fund under item (b) of that subparagraph) established and operated in the country of residence of the UPE;

2. Constituent entities falling under Article 77-2 (1) 2 of the Act: Dividend amounts distributed by the relevant constituent entity to the UPE of a MNE Group that is subject to the dividend deduction system referred to in subparagraph (1) of that paragraph (hereinafter referred to in this Article as the "dividend deduction system"), which satisfy all of the following requirements:

(a) The constituent entity shall distribute the dividends to the UPE directly, or indirectly through one or more constituent entities (limited to entities located in the same country as the relevant UPE and the relevant constituent entity) that are subject to the dividend deduction system;

(b) The relevant UPE shall distribute dividends distributed under item (a) to a person referred to in any item of subparagraph 1.

(2) "System prescribed by Presidential Decree" in Article 77-2 (1) 1 of the Act means a system for deducting the distribution of profits from the income of the relevant entity, where the relevant entity distributes profits to its shareholders, etc., which allows the distribution of profits to be taxed only at the stage of its shareholders, etc. (including a tax-free system for cooperatives).

(3) The covered taxes and GloBE income of a constituent entity subject to the dividend deduction system under Article 77-2 (1) of the Act shall be calculated by deducting the amount obtained by multiplying the amount under subparagraph 1 by the ratio under subparagraph 2, respectively:

1. Covered taxes of relevant constituent entity;

2. The ratio calculated by dividing the amount of dividends deducted under Article 77-2 (1) of the Act and paragraph (1) of this Article by the amount obtained by subtracting the net tax expense under Article 104 (1) 1 (excluding taxes on undistributed income or income from equity or reserves) from the GloBE income amount of the relevant constituent entity.

[This Article Wholly Amended on Feb. 28, 2025]

Article 133(Special cases on UPE that is pass-through entity) #

(1) "Ownership interests prescribed by Presidential Decree ... subject to taxation at the minimum or higher rate" in Article 77-2 (2) 1 and (3) 1 of the Act means the equity interests attributable to a person specified in any of the following subparagraphs: <Amended on Feb. 29, 2024; Feb. 28, 2025>

1. The holder of equity interests, if the GloBE income attributable to the equity interests in the taxable period that ends within 12 months from the date following the end date of the relevant fiscal year of the UPE that is a pass-through entity (hereafter referred to as "attributable income" in this Article) falls under any of the following cases:

(a) Where the entire amount of attributable income is taxed at a nominal tax rate not less than the minimum tax rate;

(b) Where it is reasonably expected that the aggregate of the adjusted covered taxes of the relevant pass-through entity for the attributable income and the taxes imposed on the holder of the equity interests are not less than the amount computed by multiplying the whole amount of the relevant attributable income by the minimum tax rate;

2. A natural person who satisfies all of the following requirements:

(a) The person shall be a resident under the tax laws of the country of residence of the relevant UPE;

(b) The person shall directly hold equity interest that carry rights to not more than 5/100 of the profits and assets of the relevant UPE, as of the end of the relevant fiscal year.

3. A governmental enterprise under Article 102 (1) 1, an international organization under subparagraph 2 of that paragraph, a non-profit organization under subparagraph 3 of that paragraph, or a pension fund under subparagraph 4 of that paragraph, which meets all of the following requirements:

(a) The person shall be a resident under the tax laws of the country of residence of the relevant UPE;

(b) The person shall directly hold equity interest that carry rights to not more than 5/100 of the profits and assets of the relevant UPE, as of the end of the relevant fiscal year.

(2) The covered taxes of the UPE of a MNE Group that deducts GloBE income under Article 77-2 (2) of the Act shall be adjusted by multiplying such covered taxes by the ratio of the amount specified in subparagraph 1 of that paragraph to the GloBE income. <Added on Feb. 28, 2025>

(3) The equity interests under Article 77-2 (3) 1 and 2 of the Act shall be determined in accordance with the classifications specified in each of the following subparagraphs: <Added on Feb. 28, 2025>

1. In the case of a permanent establishment of the UPE of a MNE Group: The equity interest in the relevant UPE;

2. In the case of a permanent establishment of a constituent entity of which shares are directly owned by the UPE of a MNE Group or indirectly owned through a fiscally transparent entity: The equity interest indirectly held in such constituent entity that is a fiscally transparent entity by the holder of the equity interest in the UPE.

(4) The covered taxes of a permanent establishment which deducts GloBE income under Article 77-2 (3) of the Act shall be adjusted by multiplying such covered taxes by the ratio of the amount specified in subparagraph 1 of that paragraph to the GloBE income. <Added on Feb. 28, 2025>

[This Article Added on Dec. 29, 2023]

[Moved from Article 133; previous Article 132 moved to Article 133 <Feb. 29, 2024>]

Article 134(Special cases concerning eligible distribution tax system) #

(1) "Tax system prescribed by Presidential Decree" in Article 78 (1) of the Act means a taxation system that satisfies all of the following requirements (hereafter referred to as "eligible distribution tax system" in this Article):

1. Corporate tax shall be imposed on the relevant profits only when the profits of a corporation are distributed (including cases deemed to be distributed) to shareholders, or corporate tax shall be levied on the relevant expenses only when specific business-related expenses prescribed by the State that levies the corporate tax at the time of distribution of profits of the corporation;

2. It shall be taxed at a tax rate not less than the minimum tax rate;

3. It shall have entered into force before July 1, 2021.

(2) "Amount prescribed by Presidential Decree, such as the amount necessary to increase the effective tax rate to the minimum rate" in Article 78 (1) of the Act means the lesser of the following amounts (hereafter referred to as "amount of deemed distribution tax" in this Article):

1. Adjusted covered taxes additionally necessary for the effective tax rate under Article 69 of the Act of the relevant country (referring to the amount calculated without including the amount related to dividend payable out of the total adjusted amount of deferred corporate taxes under Article 67 of the Act) to reach the minimum tax rate for the relevant fiscal year;

2. The amount of corporate taxes that would be incurred if all the constituent entities of the relevant country distributed in the relevant fiscal year all of the incomes subject to the eligible distribution tax system accrued in the relevant fiscal year.

(3) The selection of a filing constituent entity under Article 78 (1) of the Act shall be made annually, and shall be applied to each country.

(4) Where a filing constituent entity selects to add the deemed distribution taxes pursuant to paragraph (3), the MNE Group shall, for each fiscal year subject to the selection, make a separate account equal to the deemed distribution taxes of the relevant fiscal year (hereafter referred to as "reversal account for deemed distribution tax" in this Article) for each country.

(5) "Period prescribed by Presidential Decree" in Article 78 (2) of the Act means the period from the commencement date of the fiscal year in which the date of establishment of the reversal account for deemed distribution tax under paragraph (4) falls to the end date of the forth fiscal year thereafter. <Amended on Feb. 28, 2025>

(6) "Cases prescribed by Presidential Decree, such as where an amount equivalent to that of deemed distribution tax added is not actually imposed" in Article 78 (2) of the Act means where an amount equivalent to the deemed distribution tax is not taxed within the period under paragraph (5) and the balance remains in the relevant reversal account of the deemed distribution tax as of the end date of the relevant period.

(7) In cases falling under paragraph (6), after deducting the balance remaining in the account of reversal of deemed distribution tax amount from the tax amount subject to national adjustment for the fiscal year in which the relevant account is established pursuant to Article 78 (2) of the Act, the effective tax rate and the addition thereof. Recalculate the tax amount.

(8) Except as otherwise provided for in paragraphs (4) through (7), the operation methods of the reversal account for deemed distribution tax shall be prescribed by Decree of the Ministry of Economy and Finance.

[This Article Added on Dec. 29, 2023]

Article 135(Special Cases on Investment Constituent Entities) #

(1) "An entity fulfilling the requirements prescribed by Presidential Decree, such as that the income attributable to the equity interest in a pass-through entity is subject to taxation in the country of residence of a person who directly or indirectly holds the equity interest" referred to in the former part, with the exception of the calculation formula, of Article 79 (1) of the Act means a fiscally transparent entity (including an entity deemed to be a fiscally transparent entity under the proviso of Article 108 (2)). <Amended on Feb. 29, 2024; Feb. 28, 2025>

(2) In applying the formula under Article 79 (1) of the Act, the following amounts shall be set as the amounts prescribed in the relevant subparagraph: <Amended on Feb. 29, 2024>

1. The amount of adjusted covered taxes of each investment constituent entity (excluding a tax transparent entity; hereafter the same shall apply in this Article through Article 137): The amount of adjusted covered taxes corresponding to the GloBE income amount allocated to the relevant investment constituent entity under subparagraph 2 and the amount of adjusted covered taxes allocated to the relevant investment constituent entity under Article 67 of the Act;

2. The amount of GloBE income allocated to the relevant investment constituent entity: An amount calculated by multiplying the amount under item (a) by the ratio under item (b):

(a) The amount of GloBE income allocated to the relevant investment constituent entity;

(b) Income inclusion ratio (IIR) corresponding to the ownership shares to which the selection under Article 79 (5) or (6) of the Act is not applied (hereafter in this Article, referred to as "adjusted IIR") among the IIR of the UPE of the relevant MNE Group for the relevant investment constituent entity;

3. GloBE loss allocated to each investment constituent entity: An amount computed by multiplying the GloBE losses of the relevant investment constituent entity by the adjusted IIR.

(3) In applying the formula under Article 79 (3) of the Act, the following ratio and amounts shall be set as the ratio and amounts specified in the relevant subparagraph: <Amended on Feb. 29, 2024>

1. The ratio of the top-up taxes of investment constituent entities located in the relevant country: The ratio of deducting the effective tax rate of the investment constituent entities from the minimum tax rate (where the result of the calculation is negative, it shall be deemed nil);

2. The amount of excess profits of investment constituent entities located in the relevant country: An amount obtained by deducting the amount under item (b) from the amount under item (a) (where the result of calculation is negative, it shall be deemed nil):

(a) Amount obtained by deducting amount under (ii) from (i);

(b) The total amount of substance-based income exclusion allocated to each investment constituent entity (referring to an amount reduced by applying the adjusted IIR of the relevant investment constituent entity to the amount of substance-based income exclusion for each investment constituent entity);

(ii) The total amount of GloBE losses allocated to each investment constituent entity under paragraph (2) 3;

b. The total amount of substance-based income exclusion allocated to each investment constituent entity (referring to an amount reduced by applying the adjusted IIR of the relevant investment constituent entity to the amount of substance-based income exclusion for each investment constituent entity);

3. The additional current top-up taxes of the investment constituent entities located in the relevant country: The aggregate of additional current top-up taxes computed by applying Article 119 mutatis mutandis to each investment constituent entity;

4. The amount of qualified domestic minimum top-up taxes of investment constituent entities located in the relevant country: An amount paid or to be paid under the qualified domestic minimum top-up tax system under Article 70 (5) of the Act in relation to the relevant investment constituent entities.

(4) In applying the calculation formula under Article 79 (3) of the Act, if the deduction of the qualified domestic minimum top-up taxes under paragraph (3) 4 of this Article results in nil or negative amount of top-up taxes of investment constituent entities located in the relevant country, it shall be deemed there is no amount of additional top-up taxes for the relevant fiscal year.

(5) Notwithstanding Article 122 (1), when calculating the top-up taxes allocated to the parent entity under Article 72 (2) of the Act in regard to the top-up taxes of investment constituent entities under Article 79 (4) of the Act, the IIR shall be the value specified in the following subparagraphs:

1. Where top-up taxes allocated to the UPE is calculated: 1;

2. Where top-up taxes allocated to a parent entity other than the UPE is calculated: Rate prescribed by Decree of the Ministry of Economy and Finance.

[This Article Added on Dec. 29, 2023]

Article 137(Selection of application of tax allocation method) #

(1) "Cases prescribed by Presidential Decree, such as where it is reasonably expected to be taxed at a minimum tax rate or higher" in the provisions, with the exception of the subparagraphs, of Article 79 (6) of the Act, means cases where the aggregate of the following amounts is reasonably expected to be at least the amount obtained by multiplying the amount of distribution (including an amount deemed distributed under the tax law of the relevant country; hereafter the same shall apply in this paragraph) to the shareholder-constituent entity (excluding an investment constituent entity; the same shall apply in this Article) of an investment-constituent entity by the minimum tax rate: <Amended on Feb. 28, 2025>

1. The amount of adjusted covered taxes of an investment-constituent entity attributable to the income from which the distribution to the shareholder constituent entity is sourced;

2. The amount of tax imposed on a shareholder-constituent entity with respect to the distribution to the shareholder-constituent entity of an investment-constituent entity.

(2) In applying the method referred to in each subparagraph of Article 79 (6), in accordance with the part, with the exception of the subparagraphs, of Article 79 (6), if there is any amount deducted from the tax amount incurred to the constituent entity-owner in relation to the distributions, etc. under paragraph (3), which is a covered tax to be paid by the relevant investment constituent entity, such amount shall be included in the GloBE income and adjusted covered taxes of the relevant constituent entity-owner. <Amended on Feb. 29, 2024; Feb. 28, 2025>

(3) "An amount prescribed by Presidential Decree, such as GloBE income of the investment constituent entity that is distributed to the constituent entity-owner" in Article 79 (6) 1 of the Act means profits, surplus, etc. that are distributed or deemed distributed by the investment constituent entities to the constituent entity-owners (hereafter referred to as "dividends, etc." in this Article). In such cases, the amount deemed distributed shall include an amount attributable to the ownership interests subject to transfer, among the undistributed net GloBE income under paragraph (4) of the relevant investment constituent entity as of the date immediately preceding the date of transfer, if the ownership interests of an investment constituent entity held directly or indirectly by the constituent entity-owner are transferred to an entity not belonging to the relevant MNE Group. <Amended on Feb. 29, 2024; Feb. 28, 2025>

(4) In Article 79 (6) 2 of the Act, "amount prescribed by Presidential Decree on the last day of each business year, such as the amount of an investment entity's undistributed global anti-base erosion income for the third business year" means an amount calculated by deducting the following amounts from the GloBE income of investment constituent entities (to be deducted only until the relevant GloBE income becomes nil; hereafter referred to as "undistributed net GloBE income" in this Article), in the third business year before the commencement of each business year (hereafter referred to as "target business year" in this Article): <Amended on Feb. 29, 2024; Feb. 28, 2025>

1. The amount of covered taxes of the relevant investment constituent entities;

2. Distributions, etc. made during the relevant period (referring to the period from the commencement date of the applicable fiscal year to the end date of each fiscal year, during which the MNE Group to which the investment constituent entity belongs holds an ownership interest in the investing constituent entity; hereinafter the same in this Article) through any shareholder of the investment constituent entity (excluding cases where the shareholder is also an investment constituent entity), or through another investment constituent entity (excluding cases where the person is also an investment constituent entity), excluding any portion of such distributions that was used in the calculation of the unallocated net GloBE income amount for the prior fiscal year;

3. The amount of GloBE loss of the relevant investment constituent entity during the target period (if the relevant amount is used to calculate the undistributed net GloBE income in the previous fiscal year, such amount shall be excluded; and the remaining balance after the target period shall be carried over to the following fiscal year).

(5) The selection of a filing constituent entity under Article 79 (6) of the Act shall be a five-year option, which shall apply to all the ownership interests of investment constituent entities held by a constituent entity-owner for each constituent entity-owner. <Amended on Feb. 29, 2024>

(6) Where a filing constituent entity withdraws an option under paragraph (5), if there is any balance of the undistributed net GloBE income attributable to the ownership interests held by the relevant constituent entity-owners as at the end of the business year immediately preceding the business year of cancellation, such balance shall be deemed the GloBE income of the relevant investment constituent entity in the business year of cancellation, and an amount calculated by multiplying the aforesaid amount by the minimum tax rate shall be deemed the top-up taxes of the relevant investment constituent entity under Article 71 of the Act. <Amended on Feb. 29, 2024; Feb. 28, 2025>

(7) Except as otherwise provided for in paragraphs (2) through (6), detailed matters necessary for a filing constituent entity to apply the methods under the subparagraphs of Article 79 (6) of the Act, such as the calculation of top-up taxes on the investment constituent entity shall be prescribed by Decree of the Ministry of Economy and Finance. <Amended on Feb. 29, 2024>

[This Article Added on Dec. 29, 2023]

Article 138(Exemption from application) #

(1) In the main clause of Article 80 (1) of the Act, "a country that meets the requirements for exemption from application prescribed by Presidential Decree" means a country that meets any of the following requirements for each business year which commences before December 31, 2026 and ends before June 30, 2028 (hereafter referred to as "transitional business year" in this Chapter): <Amended on Feb. 29, 2024; Feb. 28, 2025>

1. De minimis requirement: The total revenues and the pre-tax profits and losses prescribed by Decree of the Ministry of Economy and Finance of the relevant country in accordance with a report by country (hereafter referred to as "qualified report by country" in this Article) prepared and submitted by a MNE Group based on the financial statements prescribed by Decree of the Ministry of Economy and Finance shall be less than EUR 10 million and EUR 1 million, respectively;

2. Requirement for simplified effective tax rate: The effective tax rate calculated as prescribed by Decree of the Ministry of Economy and Finance shall be not below the following rates:

(a) For a transitional fiscal year of which commencement date falls in 2024: 15 percent;

(b) For a transitional fiscal year of which commencement date falls in 2025: 16 percent;

3. Excess profit requirements: The amount of pre-tax profit or loss under subparagraph 1 shall fall under any of the following cases:

(a) Where the amount of loss has accrued;

(b) Where a profit has accrued and the amount of profit is less than or equal to the total amount of substance-based income exclusion of all constituent entities of the relevant country according to a qualified report by country;

(2) The selection of filing constituent entities under the main clause of Article 80 (1) of the Act shall be made annually. <Amended on Feb. 28, 2025>

(3) "Other requirements prescribed by Presidential Decree" in the proviso of Article 80 (1) of the Act means the following requirements: <Amended on Feb. 28, 2025>

1.The country concerned falls under any of the subparagraphs of paragraph (1);

2. The relevant country is not a country over which a filing constituent entity selects to add deemed distribution taxes pursuant to Article 78 (1) of the Act;

3. Where the relevant MNE Group is a multi-parented MNE Group, a single qualified report by country shall not omit even part of the details of the two or more groups;

4. The relevant constituent entities are not stateless constituent entities;

5. Where in the transitional business year of a MNE Group subject to the GloBE Rule internationally agreed upon, the relevant country is not applied an exemption of application under the main clause of Article 80 (1) of the Act in the transitional business year (excluding cases where the relevant MNE Group does not establish a constituent entity in the relevant country during the first transitional business year), the relevant transitional business year shall not be corresponding to the transitional business year thereafter of the relevant country.

(4) "Case prescribed by Presidential Decree" in the proviso of Article 80 (1) of the Act means any of the following cases: <Amended on Feb. 28, 2025>

1. The effective tax rate of the relevant country is lower than the minimum tax rate, in which cases the Republic of Korea may impose top-up taxes;

2. The Korean tax authority shall, as prescribed by Decree of the Ministry of Economy and Finance, have notified the domestic constituent entity, which would have been liable to pay the allocated top-up tax amount in the absence of the exemption under the main clause of Article 80 (1) of the Act, of any matters that may significantly affect the satisfaction of the requirements under paragraph (3), and have requested an explanation regarding the impact of such matters;

3. The domestic constituent entities which have been notified under subparagraph 2 shall have failed to prove the fact that the relevant matters did have a significant impact on the fulfillment of the requirements under paragraph (3) within six months from the date of receipt of such notification.

(5) In applying paragraph (1) to joint ventures, the details, etc. necessary for applying the requirements specified in subparagraphs of the same paragraph, such as the method of calculation of the total revenues and the pre-tax profits or losses under subparagraph 1 of the aforesaid paragraph shall be prescribed by Decree of the Ministry of Economy and Finance.

[This Article Added on Dec. 29, 2023]

[Title Amended on Feb. 28, 2025]

Article 139(Calculation of total deferred tax adjustment for year of initial application) #

(1) With respect to deferred tax assets and deferred tax liabilities to be included in the calculation of the total amount of deferred tax adjustment for the initial applicable year under Article 81 (1) of the Act, the lower tax rates between the tax rates applicable to the calculation of the deferred tax assets and deferred tax liabilities and the minimum tax rates shall apply. <Amended on Feb. 28, 2025>

(2) Notwithstanding paragraph (1), in the case where the relevant MNE Group vindicates that if the GloBE Rule had been applied in the business year in which deferred tax assets applied with a tax rate lower than the minimum tax rate are accrued, the relevant deferred tax assets would have arisen due to GloBE tax loss, the relevant deferred tax assets may be recalculated by applying the minimum tax rate. <Amended on Feb. 28, 2025>

(3) The total deferred tax adjustment amount for the year of initial application under paragraph (1) shall be calculated in accordance with the following standards: <Amended on Feb. 28, 2025>

1. Deferred tax assets arising from tax credits carried forward under Article 112 (1) 1-2 (b) (iii) shall be treated according to the following classifications; in such cases, the change in the amount of deferred tax assets resulting from the recalculation under each of the following items shall not be included in the calculation of the total deferred tax adjustment amount:

(a) Where the tax rate applicable to the calculation of the relevant deferred tax assets is equal to or higher than the minimum tax rate: To recalculate it by multiplying the relevant deferred tax assets by the ratio obtained by dividing the minimum tax rate by the tax rate applicable to the calculation of the relevant deferred tax assets;

(b) Where the tax rate applicable to calculate the relevant deferred tax assets changes after the year of initial application (limited to the cases where the rate remains at or above the minimum tax rate): To recalculate by multiplying the amount of the deferred tax asset remaining in accounting immediately before the changed tax rate applies by the ratio of the minimum tax rate divided by the changed tax rate;

2. Deferred tax assets under Article 81 (1) of the Act shall also include the amount of deferred tax assets that arose in a fiscal year preceding the first year of application but were not appropriated as deferred tax assets in the accounts at the start date of the first year of application because they did not meet the accounting recognition criteria in the fiscal year in which they arose or in a subsequent fiscal year (limited to the fiscal year before the first year of application);

3. Where a non-qualified refundable tax credit accrued in the business year preceding the year of initial application is settled by tax credit or cash payment in the year of initial application, the amount shall not be deducted from the covered tax for the relevant business year, notwithstanding the main clause of subparagraph 2 (b) of Article 110;

4. Article 67 (3) of the Act shall not apply to deferred tax liabilities to which Article 81 (1) of the Act applies;

5. The following deferred tax assets and deferred tax liabilities shall not be included in the calculation of the total deferred tax adjustment amount:

(a) Deferred tax assets and deferred tax liabilities under the consolidated controlled foreign corporation tax system;

(b) Deferred tax assets on the items excluded from the calculation of the GloBE income and loss under Article 66 of the Act, which are deferred tax assets accrued from transactions from December 1, 2021 to the day before the commencement date of the initial applicable year.

(2) Except as otherwise provided for in paragraphs (1) through (3), detailed matters necessary to calculate the effective tax rate for the first year of application, including the calculation of the total deferred tax adjustment amount for the first year of application, shall be prescribed by Decree of the Ministry of Economy and Finance.

[This Article Added on Dec. 29, 2023]

Article 142(Return and payment of top-up taxes) #

(1) Any domestically constituent entity that intends to file a report on the allocable share of top-up taxes to the head of the tax office having jurisdiction over the place of tax payment in accordance with the former part of Article 84 (1) of the Act shall submit the following documents; in such cases, when the allocable share of top-up taxes are converted to Korean Won in accordance with the latter part of Article 84 (1) of the Act, the average exchange rate for the relevant fiscal year prescribed by Decree of the Ministry of Economy and Finance shall apply: <Amended on Feb. 29, 2024>

1. In the case of a domestic constituent entity that pays the share of top-up taxes allocated to a domestic constituent entity that is parent entity under Article 72 of the Act: A top-up tax return in the form prescribed by Decree of the Ministry of Economy and Finance;

2. In the case of a domestic constituent entity that pays the allocable share of top-up taxes distributed to domestic constituent entities under Article 73 of the Act: Documents classified in the following items:

(a) Where the top-up tax amount is calculated by applying the method specified in Article 73 (5) 1 of the Act: The following documents:

(i) A top-up tax return under subparagraph 1;

(ii) The detailed statement of calculation of top-up taxes in the form prescribed by Decree of the Ministry of Economy and Finance;

(b) Where the allocable share of top-up taxes is calculated by applying the method under Article 73 (5) 2 of the Act: The following documents:

(i) A top-up tax return under subparagraph 1;

(ii) A written designation of top-up tax allocation and a written agreement on designation in the form prescribed by Decree of the Ministry of Economy and Finance;

(2) A domestic constituent entity that pays the top-up tax allocation pursuant to Article 84 (2) of the Act shall pay it to the head of the competent tax office having jurisdiction over the place of tax payment along with a return filed under paragraph (1) of the same Article, or pay it to the Bank of Korea (including an agency thereof) or to the postal office, attaching a payment slip under Article 5 of the National Tax Collection Act.

(3) Article 101 (2) of the Enforcement Decree of the Corporate Tax Act shall apply mutatis mutandis to the installment payment under Article 84 (3) of the Act.

[This Article Added on Dec. 29, 2023]

Article 144(Criteria for imposition of administrative fines for failure to fulfill obligation to submit data on international transactions) #

(1) "Unavoidable cause prescribed by Presidential Decree" in the provisions, with the exception of the subparagraphs, of Article 87 (1) of the Act means the causes specified in the subparagraphs of Article 37 (1). <Amended on Feb. 28, 2023>

(2) The criteria for imposing administrative fines for the failure to submit all or part of the following data or for the submission of any false data pursuant to Article 87 (1) of the Act shall be classified as follows: <Amended on Feb. 28, 2023; Dec. 29, 2023; Feb. 28, 2025>

1. A consolidated business report, individual business report, or a report by country under Article 16 (1) of the Act: KRW 30 million per report;

2. A statement of international transactions under Article 16 (2) 1 of the Act: KRW five million for each foreign related party;

3. Data requested by the tax authorities pursuant to Article 16 (4) of the Act: The following amounts:

(a) Data specified in Article 38 (1) 1 through 3: KRW 30 million;

(b) Data specified in Article 38 (1) 4 through 13 and 15: KRW 50 million;

4. GloBE information report under Article 83 (1) of the Act: KRW 100 million;

5. Report data on matters related to a constituent entity located in a foreign country under Article 83 (4) of the Act: KRW 100 million.

(3) In the proviso of Article 87 (1) 3 of the Act, "where the domestic constituent entity has taken measures prescribed by Presidential Decree, such as disclosure of the details of calculation of GloBE income and loss for the transitional fiscal year" means cases where all of the following requirements are satisfied: <Added on Feb. 29, 2024>

1. It shall be recognized that the relevant domestic constituent entity has understood and endeavored in good faith to comply with the internationally agreed GloBE Rule and domestic statutes and regulations on the qualified domestic minimum top-up tax system under Article 70 (5) of the Act;

2. It shall fall under any of the following items:

(a) Where the UPE or the filing constituent entity, which is a domestic constituent entity, discloses all the details of the calculation of GloBE income and loss to the taxation authority;

(b) Where the relevant domestic constituent entity has informed the tax authorities of the fact that an error has occurred in the GloBE Information report submitted under Article 83 (1) of the Act and the cause of such error, and it is recognized that there are reasonable grounds to misunderstand the fact that caused such errors;

(c) Where the relevant domestic constituent entity vindicates to the tax authorities that the cause of the violation of obligations was caused by the ambiguity of provisions of the GloBE Rule internationally agreed upon, and the details of vindication are recognized as being based on a reasonable interpretation of the relevant provisions of the GloBE Rule;

(d) Where the relevant domestic constituent entity vindicates to the tax authorities that the violation of obligations was caused by its failure to fully understand the GloBE Rule internationally agreed upon, and the details of vindication is deemed reasonable, considering that the GloBE Rule is in the early stage of implementation;

(e) Where the relevant domestic constituent entity vindicates to the tax authorities that the violations of obligations related to the submission of GloBE information report does not reduce the burden of payment of top-up taxes for the relevant transitional fiscal year or subsequent fiscal years.

(4) Administrative fines under Article 87 (2) of the Act shall be calculated in accordance with the following formula; in such cases, it shall not exceed the upper limit of administrative fines under Article 87 (2) of the Act: <Amended on Feb. 28, 2023; Feb. 29, 2024>

┌────────────────────────────────────────────┐

│ (1+delayed period)/30 │

│ x amounts under each subparagraph of paragraph (2) │

│ │

│※ The delayed period (referring to the number of days from the day following the last day of the 30-day compliance period set by the tax authorities until the date of │

│ submission of required documents or compliance with the corrective order) shall be divided by 30, and any decimal fraction shall be disregarded. │

└────────────────────────────────────────────┘

(5) The administrative fines calculated under paragraph (2) or (4) may be reduced or increased by up to 50 percent of the relevant administrative fines, taking into account the severity of the violation, the number of violations, the motives and consequences of the violation, etc; provided, where the administrative fines are increased, the amount shall not exceed the upper limit of the administrative fines under Article 87 (1) and (2) of the Act. <Amended on Feb. 28, 2023; Feb. 29, 2024>

(6) In the following cases, the administrative fines calculated under paragraphs (2), (4), and (5) shall be reduced by the ratio specified in the relevant subparagraph and imposed; provided, this shall not apply to cases where the taxpayer knew in advance that the tax authorities would impose an administrative fine and submitted the documents: <Added on Feb. 15, 2022; Feb. 29, 2024>

1. Where a person has submitted supplemented data after the deadline for submission referred to in Article 16 (1) and (2) of the Act (hereafter in this Article referred to as "deadline for submission") by adding omitted data or correcting false data: The rates classified as follows:

┌────────────────────────────────┬────────────┐

│ Supplementary submission date │ Reduction rate │

├────────────────────────────────┼────────┤

│ (a) Within 6 months after the submission deadline │ 90% │

├────────────────────────────────┼────────┤

│ (b) More than 6 months but within 1 year after the submission deadline │ 70% │

├────────────────────────────────┼────────┤

│ (c) More than 1 year but within 2 years after the submission deadline │ 50% │

├────────────────────────────────┼────────┤

│ (d) More than 2 years but within 4 years after the submission deadline │ 30% │

└───────────────────────────────────┴────────┘

2. Where a person has submitted data after the deadline for submission: The rates classified as follows:

┌──────────────────────────────────┬─────────┐

│ Submission after deadline │ Reduction rate │

├──────────────────────────────────┼─────────┤

│ (a) Within 1 month after the submission deadline │ 90% │

├──────────────────────────────────┼─────────┤

│ (b) More than 1 month but within 6 months after the submission deadline │ 70% │

├──────────────────────────────────┼─────────┤

│ (c) More than 6 months but within 1 year after the submission deadline │ 50% │

├──────────────────────────────────┼─────────┤

│ (d) More than 1 year but within 2 years after the submission deadline │ 30% │

└──────────────────────────────────┴─────────┘

(7) In imposing administrative fines under paragraph (2) or (4), where a person submitting data fails to submit part of data or causes errors in some items due to a minor mistake, the tax authorities need not impose administrative fines, upon receiving the corrected data. <Amended on Feb. 15, 2022; Feb. 29, 2024>

[Title Amended on Feb. 15, 2022]

[Moved from Article 100 <Dec. 29, 2023>]

Article 147(Criteria for imposition of administrative fines for non-fulfillment of obligation to report overseas financial accounts) #

(1) The criteria for imposing administrative fines under Article 90 (1) of the Act and the main clause of paragraph (2) of that Article shall be classified as follows: <Amended on Feb. 28, 2023; Feb. 28, 2025>

1. Where an account reporting obligor fails to report or under-reports foreign financial accounts by the deadline: 10% of the sum of unreported amount and underreported amount (referring to the difference between the actual balance and the reported balance) per reportable account, or 1 billion won, whichever is less;

2. Where an account reporting obligor fails to explain the source of the amounts of violation of reporting obligation or gives a false explanation: 10% of the amount unexplained or falsely explained.

(2) An administrative fine calculated under paragraph (1) may be reduced or increased by up to 50 percent of the relevant amount in consideration of the severity of the relevant violation, frequency of violation, motive for and consequences of violation, and other factors; provided, in cases of increasing the administrative fine, it shall not exceed the upper limit of an administrative fine specified in Article 90 (1) and (2) of the Act. <Amended on Feb. 28, 2023>

(3) Where a person subject to an administrative fine under Article 90 (1) of the Act submits a report on the current status of the balance of deposits traded overseas pursuant to Article 20 of the Foreign Exchange Transactions Act, the tax authorities may impose an administrative fine after reducing the amount of an administrative fine referred to in paragraph (1) by up to 50 percent. <Amended on Feb. 28, 2023>

(4) In any of the following cases, an administrative fine calculated pursuant to paragraphs (1) through (3) shall be subject to the following reduction rates; provided, the same shall not apply where a person required to report his or her account has filed a report knowing in advance the imposition of an administrative fine by the tax authority:

1. Where a person files a revised report pursuant to Article 55 (1) of the Act after the reporting deadline prescribed in Article 53 (1) of the Act (hereafter in this Article referred to as "reporting deadline"): The rates classified in the following table:

┌─────────────────────────────┬────────────┐

│ Date of Revised Report │ Reduction Rate │

│ a. Within 6 months after the reporting deadlin e │ 90% │

├────────────────────────────────┼────────┤

│ b. Within 1 year but more than 6 months after the reporting deadline │ 70% │

├────────────────────────────────┼────────┤

│ c. Within 2 years but more than 1 year after the reporting deadline │ 50% │

├────────────────────────────────┼────────┤

│ d. Within four years but more than two years after the reporting deadline │ 30% │

└────────────────────────────┴────────┘

2. Where an overdue report is filed pursuant to Article 55 (2) of the Act after the reporting deadline: The rate classified as follows:

┌──────────────────────────────────┬─────────┐

│ Date of Report after Deadline │ Reduction Rate │

├──────────────────────────────────┼─────────┤

│ a. Within 1 month after the reporting deadline │ 90% │

├──────────────────────────────────┼─────────┤

│ b. Within 1 month but more than 6 months after the reporting deadline │ 70% │

├──────────────────────────────────┼─────────┤

│ c. Within 6 months but more than 1 year after the reporting deadline │ 50% │

├──────────────────────────────────┼─────────┤

│ d. Within 1 year but more than 2 years after the reporting deadline │ 30% │

└──────────────────────────────────┴─────────┘

(5) "Where there exists any unavoidable cause prescribed by Presidential Decree, such as a natural disaster" in the proviso of Article 90 (2) of the Act means the following cases: <Amended on Feb. 28, 2023>

1. Where it is impossible to give an explanation because evidentiary documents, etc. no longer exist due to any unavoidable causes, such natural disasters, fire, disasters, or theft;

2. Where it is impossible for a person required to report his or her account to explain the source of the noncompliance amount due to the circumstances of a country in which a foreign financial account is located and similar reasons.

(6) In imposing an administrative fine under paragraph (1), if there are reasons to believe that a report was not filed because of simple mistakes, such as an error in adding up the balance of foreign financial accounts, the administrative fine may not be imposed.

(7) If an account undeclared or under-declared is additionally discovered in imposing an administrative fine under paragraph (1), the administrative fines to be additionally imposed shall be the amount calculated by subtracting the administrative fines already imposed from the administrative fines to be imposed based on the total amount of undeclared or under-declared amount.

[Moved from Article 103 <Dec. 29, 2023>]

Article 148(Standards for imposition of administrative fines for non-compliance with obligations of data submission by overseas subsidiaries) #

(1) The standards for imposing administrative fines under Article 91 (1), (2), and (4) of the Act shall be as specified in the Appendix. <Amended on Feb. 28, 2023; Feb. 29, 2024>

(2) "Unavoidable cause prescribed by Presidential Decree, such as where it is deemed impracticable ... to submit data by the deadline" in the provisos, with the exception of the subparagraphs, of Article 91 (1) of the Act means any cause specified in the following subparagraphs: <Amended on Feb. 29, 2024>

1. Where a taxpayer is unable to submit the relevant data due to fire, disaster, robbery, etc.;

2. Where it is extremely impracticable for a taxpayer to submit the relevant data due to a serious business crisis;

3. Where the relevant books or documents are confiscated or kept in custody by a competent authority;

4. Where it is impossible to submit the relevant data by the deadline, as it will take a substantial time to collect and compile such data;

5. Where it is deemed impossible to submit data by the deadline, on any grounds similar to those specified in subparagraphs 1 through 4.

(3) "Acquisition value, disposal value, and income from investment operations of the overseas real estate, etc. prescribed by Presidential Decree" in the main clause, with the exception of the subparagraphs, of Article 91 (2) of the Act means the amounts classified as follows: <Amended on Feb. 28, 2023>

1. An acquisition value: The value calculated by subtracting the amount declared under Article 18 of the Foreign Exchange Transactions Act with respect to the acquisition of the relevant overseas real estate, etc. from the acquisition values classified as follows:

(a) Residents: An acquisition value under Article 118-4 (1) 1 of the Income Tax Act;

(b) Domestic corporations: An acquisition value under Article 41 of the Corporate Tax Act;

2. Disposal value: The value calculated by subtracting the amount declared under Article 20 of the Foreign Exchange Transactions Act with respect to the disposal of the relevant overseas real estate, etc. from the transfer value under Article 118-3 of the Income Tax Act;

3. Income from investment operations: The amount classified as follows related to the investment operations of overseas real estate, etc.:

(a) Residents: The total amount of income prescribed in Article 24 of the Income Tax Act;

(b) Domestic corporations: Gross income prescribed in Article 15 of the Corporate Tax Act.

(4) "Unavoidable cause prescribed by Presidential Decree, such as where it is deemed impracticable ... to submit data by the deadline" in the proviso, with the exception of the subparagraphs, of Article 91 (2) of the Act means any cause specified in each subparagraph of paragraph (2): <Amended on Feb. 29, 2024>

(5) "Where there exists any natural disaster or any unavoidable cause prescribed by Presidential Decree" in the proviso of Article 91 (3) of the Act means the following cases: <Amended on Feb. 28, 2023; Feb. 29, 2024>

1. Where the vindication becomes impossible because evidentiary documents, etc. no longer exist due to any unavoidable causes, such as natural disasters, fire, disasters, or theft;

2. Where it is impossible to explain due to the circumstances of the country of domicile of the relevant overseas subsidiaries, overseas real estate, etc., or overseas trust property.

(6) "Unavoidable cause prescribed by Presidential Decree, such as where it is deemed impracticable or unnecessary... to submit data by the deadline" in the proviso, with the exception of the subparagraphs, of Article 91 (4) of the Act means any cause specified in each subparagraph of paragraph (2): <Added on Feb. 29, 2024>

(7) The head of the tax office having jurisdiction over the place for tax payment may reduce or increase the amount of administrative fines under Article 91 (3) of the Act and Appendix by up to 50 percent, in consideration of the degree of the violation, frequency of the violation, motive for and consequences of the violation, and other factors; provided, in cases of increasing the administrative fines, it shall not exceed the maximum limit of administrative fines under Article 91 (1) through (4) of the Act. <Amended on Feb. 28, 2023; Feb. 29, 2024>

[Moved from Article 143 <Dec. 29, 2023>]

ENFORCEMENT DECREE OF THE ADJUSTMENT OF INTERNATIONAL TAXES ACT

Article 1(Purpose) #

Article 2(Detailed criteria for special relationship) #

Article 3(Substance over form principle regarding international transactions) #

Article 4(Applicable scope of rejection of recalculation of unfair transaction) #

Article 5(Comparable uncontrolled price method) #

Article 6(Resale price method) #

Article 7(Cost plus method) #

Article 8(Transactional net margin method) #

Article 9(Profit split method) #

Article 10(Other arm’s length pricing methods) #

Article 11(Arm's length pricing methods for monetary loan transactions) #

Article 11-2(Arm's length pricing method for cash pooling transactions) #

Article 12(Arm's length pricing methods for intra-group services) #

Article 13(Arm's length pricing methods for transaction of intangible assets) #

Article 14(Selection of arm's length pricing method) #

Article 15(Application of arm's length pricing method) #

Article 16(Substantial content and commercial rationality of transactions with foreign related parties) #

Article 17(Assessment of arm’s length cost contribution and expected benefits) #

Article 18(Adjustment of participants’ shares and cost contribution following change in expected benefits) #

Article 19(Determination on tax base for payments made by new entrants or to departing participants) #

Article 20(Submission of statement of cost-share adjustments) #

Article 21(Procedures for filing application for corresponding adjustment) #

Article 22(Verification of return of amount to be included in gains) #

Article 23(Disposition and adjustment of amount whose return is not verified) #

Article 24(Temporary secondary adjustment) #

Article 25(Special cases concerning exclusion from application of temporary secondary adjustment) #

Article 26(Application for advance pricing agreements) #

Article 27(Review of application for advance pricing agreement) #

Article 28(Procedures for advance pricing agreement based on mutual agreement procedure) #

Article 29(Procedures for unilateral advance pricing agreement) #

Article 30(Cancellation of advance pricing arrangement) #

Article 31(Application for adjustment of tax base and tax amount under advance pricing agreements) #

Article 32(Submission of annual reports under advance pricing agreements) #

Article 33(Types of consolidated reports on international transaction information) #

Article 34(Submission of master file and local files) #

Article 35(Submission of country-by-country report) #

Article 36(Exemption from obligation to submit data on international transactions) #

Article 37(Extension of deadline for submission of data on international transactions) #

Article 38(Scope of data requested by tax authority and method of submission thereof) #

Article 39(Determination on negligence of taxpayers) #

Article 40(Procedures for pre-adjustment) #

Article 41(Procedures for filing claim for rectification of national taxes following rectification of customs duties) #

Article 42(Consultative council on adjustment of taxation on international transfer prices) #

Article 43(Application for adjustment of taxation on arm’s length prices for national taxes and customs value) #

Article 44(Scope of provision of information on taxation of customs duties) #

Article 45(Detailed criteria for foreign controlling stockholders) #

Article 46(Scope of borrowings) #

Article 47(Method of computing amount of investment of foreign controlling stockholders) #

Article 48(Method of calculating interest paid excluded from deductible expenses) #

Article 49(Disposal of income of non-deductible expenses of interest paid) #

Article 50(Multiplier by type of business) #

Article 51(Borrowings under ordinary terms and conditions) #

Article 52(Adjustment of withholding taxes) #

Article 53(Submission of forms concerning interest paid to foreign controlling stockholders) #

Article 54(Calculation of net interest expenses and adjusted gross income) #

Article 55(Exemption from application of exclusion of interest overpaid compared to Income from deductible expenses) #

Article 56(Submission of forms concerning net interest expenses) #

Article 57(Scope of hybrid financial instrument) #

Article 58(Reasonable period) #

Article 59(Scope of non-taxable amount) #

Article 60(Submission of data on hybrid financial instrument transactions) #

Article 60-2(Applicability to order of application of non-inclusion of paid interest in deductible expenses) #

Article 61(Scope of income actually earned) #

Article 62(Scope of actual tax burden) #

Article 63(Scope of related persons) #

Article 64(Judgment on exception from application of controlled foreign companies’ retained earnings deemed dividends) #

Article 65(Judgment on exceptional application of controlled foreign companies’ retained earnings deemed dividends) #

Article 66(Computation of distributable retained earnings) #

Article 67(Method of calculating stockholding ratio) #

Article 68(Method for exclusion of actual dividends from taxable gains) #

Article 69(Rectification claims for foreign tax credit) #

Article 70(Submission of taxable data regarding controlled foreign companies) #

Article 70-2(Special cases concerning imposition of tax on income attributable to foreign transparent entities) #

Article 71(Computation of market price of overseas donated property) #

Article 72(Foreign tax credit) #

Article 73(Scope of information on beneficial owner) #

Article 74(Exchange of tax and financial information upon request) #

Article 75(Regular exchange of financial information) #

Article 76(Detailed matters of information exchange) #